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The central bank is to make its cash rate decision this afternoon, but market consensus points to no change.
Lenders are expecting the cash rate to remain unchanged when the Reserve Bank of Australia (RBA) delivers its latest monetary policy decision this afternoon (1 April), in spite of recent encouraging inflation figures.
The decision – the first for the RBA dual board – comes less than a week after the annual trimmed mean of inflation eased to 2.7 per cent in February, down from 2.8 per cent in January and moving closer to the RBA’s target midpoint of 2.5 per cent.
While the RBA dropped interest rates last month (the first time rates were lowered since November 2020, dropping by 25 bps from 4.35 per cent to 4.10 per cent), all four majors expect the central bank to keep rates on hold at its April cash rate decision
Westpac chief economist Luci Ellis said back-to-back cuts in February and April were “never on the table”.
“The RBA was too hawkish in its rhetoric last month for that, and the board made clear that last month’s cut did not foreshadow more. Cutting again at the April meeting would therefore be damaging to its credibility,” she said.
Similarly, Commonwealth Bank of Australia (CBA) head of Australian economics Gareth Aird said given the RBA’s “modestly hawkish narrative” since the February cut, back-to-back rate drops seemed unlikely.
“Notwithstanding, we expect an on-hold decision to be accompanied by a more dovish stance,” he said.
Brokers also generally foresee a rate hold.
Despite improvements in inflation, finance brokerage Bell Partners Finance’s managing director Mark Stevenson said that another rate cut was unlikely.
“While there have been positive monthly CPI figures for the 12 months until the end of February with headline inflation slowing to 2.4 per cent, most economists don’t expect the RBA to provide more good news to mortgage holders despite inflation now being well within its 2-3 per cent target range,” Stevenson said.
“More important quarterly inflation data is not released until late April so any further movement from the RBA may have to wait until its next board meeting on May 19-20, which would be after the federal election, which must be held by May 17.
“The RBA will be factoring in measures announced in this week’s federal budget which included another $1.8 billion for energy rebates until the end of the year.”
Stevenson said the ongoing impact of trade wars will also weigh on future RBA deliberations.
“The Trump factor can never be discounted,” he said.
As at 28 March, markets had priced in an 8 per cent chance of an interest rate decrease to 3.85 per cent at the April RBA board meeting.
May rate cut could be on the cards
However, some economists are calling the next rate drop to come in May.
- Commonwealth Bank (CBA) economists said the latest inflation data left them “with a higher conviction for a May rate cut”.
- Westpac also forecasts the next rate drop to be in May, with a total of three more cuts this year, bringing the rate to 3.35 per cent.
- National Australia Bank (NAB) believes the next rate cut will take place in May, followed by August and then possibly November. It expects the cash rate to be 3.1 per cent by February 2026.
- Australia and New Zealand Banking Group (ANZ) predicts one more cut in August, taking the cash rate to 3.85 per cent.
New-look RBA board
The April rate meeting marks the first session of the new Monetary Policy Board, with the RBA now having two boards – one to set the cash rate and another for governance.
The recommendation to have a separate board to determine monetary policy was made after a review found that the existing board was mainly filled with members with business, rather than economic, backgrounds.
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