Interest rates to stay on hold despite drop in inflation

Despite lower than expected inflation, most economists don’t expect the Reserve Bank of Australia (RBA) to cut interest rates before September.

According to this month’s Finder RBA Cash Rate Survey, 100 per cent of the 41 experts and economists asked, say interest rates will remain on hold at the RBA’s March 19 meeting.

The cash rate currently sits at 4.35 per cent after 13 increases since May 2022. 

Of the experts that weighed in 25 per cent also believe the RBA won’t cut rates until 2025.

But Head of Consumer Research at Finder, Graham Cooke, said the cost of living crisis may be nearing its conclusion.

“With inflation continuing to reduce, it seems the RBA’s rate hikes are having the desired effect,” he said.

“The question is now not if the RBA will cut rates – but when?”

Mortgage Choice’s Anthony Waldron said recent data showed the economy was slowing, inflation was easing and households were cutting back on spending.

“The cumulative effect of these factors will likely give the RBA reason to keep the cash rate steady,” Mr Waldron said.

QIC Chief Economist Matthew Peter said despite reduced inflation, a sluggish economy meant rate hikes were off the table.

“Elevated migration, coming tax cuts and ongoing wage increases will stop the RBA from easing back on monetary policy until later this year,” he said.The survey also revealed that while the experts believe the next interest rate decision will be a hold, the majority said recent inflation numbers were not enough to bring forward a cash rate cut.

Panellists were evenly split on whether the RBA will make the first cut before September (43 per cent_ or afterwards (43 per cent).

For homeowners hoping for a rate decrease to ease their mortgage, 1 in 10 predicted a cut in May.

AMP Chief Economist, Shane Oliver, said economists already expected the RBA to start cutting in June, but the inflation numbers had not been low enough to bring this forward.

Bendigo Bank’s David Robertson agreed.

“The RBA will want to see much more progress with core inflation before cutting official rates,” Mr Robertson said.

Moody’s Analytics Assistant Director, Harry Murphy Cruise, said the RBA would not loosen monetary policy settings until September, at the earliest. 

“The Reserve Bank Board will want to consider the impact of a third round of tax cuts that will take effect in July. While the cuts won’t derail inflation’s retreat, they will delay it,” Mr Cruise said.

When asked if the US Federal Reserve cuts rates if it would make the RBA more likely to follow directly afterwards, more than half of experts (55 per cent, 17/31) said they did not think it would be more likely. 

Corinna Economic Advisory Economist, Saul Eslake, said the RBA has been intentionally slower to hike rates and will also be slower to cut them than the US and others.

“I think the RBA has decided it is willing to tolerate inflation being above its target for longer than its ‘peer’ central banks are willing to allow inflation being above their respective targets, in order to preserve as much as they can of the gains made in recent years in reducing unemployment and under-employment,” Mr Eslake said.

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