RBA holds cash rate at March board meeting

The official cash rate will remain at a 12-year high of 4.35% for at least another seven weeks following the Reserve Bank Board's decision to keep interest rates on hold at its March meeting.

Since its last meeting in early February the central bank has had plenty of economic data to digest, including the latest monthly inflation data from the Australian Bureau of Statistics (ABS) which came in at 3.4% for the 12 months to January.

Unemployment data also showed that the country's jobless rate ticked up to 4.1% in January, according to the ABS, while quarterly GDP figures revealed that the Australian economy grew by just 0.2% in the December quarter.

Despite the notable fall in recent months, inflation still remains a key concern for the Reserve Bank Board though.

"While recent data indicate that inflation is easing, it remains high," said a statement from the RBA.

"The Board expects that it will be some time yet before inflation is sustainably in the target range. The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out."

Could the Reserve Bank cut rates this year?

The RBA Board may be content with assessing the situation for now, but the consensus outside of the bank is that the next rate change will be a cut. It's just seems to be a matter of when.

In a survey of experts conducted by Finder before today's meeting, 43% predicted that the cash rate will be cut before September, 32% said that the first cut will come between September and the end of the year and 25% said that there won't be a cut until 2025 at the earliest.

James Morley, a survey respondent and macroeconomics professor at the University of Sydney, expects that falling growth, rising unemployment and improving services inflation could shift the dial for the Reserve Bank board later in the year.

"The RBA will continue to be concerned about services inflation and, in my mind, be unlikely to cut until they see further progress on lower services inflation and also start to see rate cuts in the United States and other countries.

"I believe a weakening of economic conditions and progress on inflation will see the RBA begin rate cutting in the second half of 2024, possibly with the September meeting."

Australia's largest banks are also forecasting a cut in the second half of the year.

In an economics update published last week Gareth Aird, the head of Australian economics at the Commonwealth Bank, stated that the bank expects rates to start falling in September, with 75 basis points worth of cuts in total for 2024 and a further 75bp in the first half of 2025.

Westpac shares a similar view, indicating in a recent update that it expects rates to remain on hold until at least September when the RBA will be more confident about the inflation outlook.

How are households with mortgages coping?

While another pause is better news than a rate hike for homeowners with a mortgage, the reality is that many households are currently struggling as they dedicate more and more income towards their mortgage payments.

More than 1.6 million Australians with a mortgage were at risk of mortgage stress in the three months to January according to the latest research from Roy Morgan - nearly a third of all mortgage holders.

That's 800,000 more than in May 2022 when the Reserve Bank started its hiking cycle. Since then the cash rate has been lifted from 0.10% to 4.35% which, in turn, has helped add hundreds and even thousands of dollars to monthly mortgage repayments.

The good news is that lenders do appear to be starting to adjust the pricing of their loans in anticipation of future rate cuts.

In the first two weeks of March, financial comparison website Mozo recorded 428 changes to home loan rates - 313 of which were cuts. The majority of these cuts were to fixed rate loans, but Rachel Wastell, Mozo spokesperson, says that this is still a positive sign for mortgage holders.

"The fixed rate cuts across the board reflect the market consensus that we've reached the peak of the rate hiking cycle.

"The sheer number of cuts we're seeing come through, and that focus on those three-year terms, does suggest that the RBA will reduce the cash rate sooner rather than later."

As part of its revamped schedule the Reserve Bank Board won't deliver a monetary policy decision in April, as it would have done in years past. Instead it will meet next on May 6 and 7.

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