Reserve Bank of Australia did not consider increasing interest rates in its latest decision

The Reserve Bank board did not consider the arguments for an additional rate hike in its latest decision, opting instead to leave the cash rate unchanged at 4.35 percent, the minutes of the meeting show. board meeting from March 18-19.

Since the central bank began its series of thirteen rate hikes in May 2022, the RBA has called for interest rates to be raised at every meeting. However, the March meeting marked the first time the central bank has abolished this option.

Still, board members said risks to the economic outlook had become “somewhat more even” and that “it was appropriate to characterize the policy outlook as one where it was difficult to rule in or out of future changes in the cash rate.” target,” the minutes said.

The Reserve Bank board did not consider the arguments for an additional rate hike in its latest decision

Most economists and investors expect the RBA’s next move to be a cut, with money markets fully priced in for a 25 basis point easing of cash rates at the RBA’s September 23 to 24 board meeting.

“Members noted that inflation had continued to moderate in recent months, largely as expected,” the minutes said.

“That said, services inflation remained high and the recent slowdown in the pace of monthly inflation was influenced by several temporary factors.”

The RBA forecasts that inflation, currently 3.4 percent on the latest measure, will fall within the target range of 2 to 3 percent by December 2025.

Board members also pointed to the fact that the path of disinflation in other countries “had not been smooth”, which “could provide lessons for Australia”.

Bringing inflation back to target “remained the board’s top priority,” but the board admitted it would “take some time before they could have sufficient confidence that this would happen within a reasonable timeframe.”

‘At the same time, members pointed out the importance of retaining as much profit as possible in the labor market.

‘In light of these assessments, members agreed that leaving the cash rate target unchanged at this meeting was the best way to achieve the Board’s strategy of supporting a gradual return of inflation towards target and from the labor market towards full employment.’

Commonwealth Bank’s head of Australian economics Gareth Aird, who expects the RBA to cut rates at the final three board meetings of 2024, noted that the minutes of the March meeting were “the most dovish piece of communication from the board since the RBA began its tightening cycle’. .

“The board is increasingly confident that the battle to bring inflation back to target is being won,” Aird said.

“Behind closed doors (the board) will see the likely next step in the cash rate as a decline, but it is still too early for the board to move to easing.”

But even as the minutes showed a softening of the bank’s rhetoric, Asia Pacific head of Capital Economics Marcel Thieliant said rate cuts remained unlikely until later this year.

“During previous easing cycles, the bank only cut rates after months of talking about rate cuts.” Mr. Thieliant said.

‘We expect the RBA to be the last major central bank to start easing monetary policy and expect the first rate cut not to come until November.’

The minutes also detailed how households fared under the weight of ‘restrictive’ financial conditions.

Since the central bank began its series of thirteen rate hikes in May 2022, the RBA has called for interest rates to be raised at every meeting.  However, the March meeting marked the first time the central bank has abolished this option.  RBA Governor Michele Bullock is pictured

Since the central bank began its series of thirteen rate hikes in May 2022, the RBA has called for interest rates to be raised at every meeting. However, the March meeting was the first time the central bank removed this option. RBA Governor Michele Bullock is pictured

‘The tightening of monetary policy had led to a significant increase in planned household debt payments. These were expected to rise slightly further in 2024 as additional fixed-rate loans moved to higher rates,” the minutes said.

Home loan growth remained low and payments on offset accounts had increased since mid-2023, the minutes showed, with low-income and less affluent households hit hardest.

‘As a result, average housing deposits had risen faster than house prices, and newer borrowers had higher incomes and lower loan-to-income ratios compared to previous cohorts.’

The board also noted that some households were finding it difficult to service their debts and meet essential expenses, but defaults remained at historically low levels.

Delinquencies on home loans were still low and banks had recently revised downwards their forecasts of potential credit losses,” the board agreed.

Commenting on the minutes, Treasurer Jim Chalmers claimed they would be a “welcome development” for household borrowers.

“By the time the Reserve Bank next meets, it will be six months since interest rates last rose in our economy,” Dr Chalmers said.

“This will allow Australian homeowners and mortgage holders to catch their breath.”

The RBA board will next meet on May 6 and 7, when interest rates are widely expected to remain unchanged.