Interest rate cuts face delay as Reserve Bank expected to hold steady at March board meeting

With household borrowers desperately holding out for an easing in interest rates, traders on Monday trimmed their rate cut bets.

Households are set to be spared from further pain at the Reserve Bank’s March meeting, but borrowers hoping for relief in the form of rate cuts may have to wait longer still.

While bond markets imply next to no chance that the official cash rate will increase on Tuesday, traders on Monday tempered their expectations for an easing in interest rates, and are now fully priced for a cut by November, bringing the cash rate to 4.1 per cent.

Previously, a cut in September was fully priced in, with a strong chance of further easing in monetary policy at the central bank’s November meeting.

Traders in the United States have similarly trimmed their rate cuts bets after firmer-than-anticipated inflation data released last week showed price pressures rebounded in the world’s largest economy.

Traders have pared back their expectations of rate cuts, with household borrowers not expected to receive relief until November. Picture: NCA Newswire / Gaye Gerard

Since January, US investors have pared back expectations of rate cuts from six to just three as inflationary pressures remain stubbornly high.

With Australia’s labour market remaining exceptionally tight, still elevated inflation, anaemic productivity growth, and the added stimulatory impact of the stage three tax cuts, some economic analysts have delayed their forecasts for rate relief.

Indeed, a survey of economists published by financial comparison service Finder found seven of 34 participants did not expect the central bank to begin curing rates by 2025 at the earliest.

Capital Economics’ Abhiji Surya said the central bank’s reluctance to “dial back” its inflation fighting rhetoric was due to “its concerns that the last mile in the fight against inflation could be the hardest.”

Reserve Bank governor Michele Bullock will soon make an announcement on rates. Picture: NCA NewsWire / Martin Ollman

Meanwhile, HSBC chief economist Paul Bloxham said it was unlikely the RBA would shift its language on the outlook for interest rates.

“We expect the RBA to remain on hold in March and the board discussion to be about whether another hike is needed, rather than about any prospect of rate cuts,” Mr Bloxham said.

Tuesday’s interest rate decision is also the central bank’s first fully-staffed board meeting since the departure of former governor Philip Lowe’s seven-year run at the helm of the bank.

Since then, former deputy governor Michele Bullock has been promoted to the top job and Bank of England official Andrew Hauser has joined the ranks of Australia’s central bank following a 31-year stint at the BoE.

Sarah Hunter, previously at Treasury, has also been appointed as the RBA’s chief economist.

Originally published as Interest rate cuts face delay as Reserve Bank expected to hold steady at March board meeting