A 'sigh of relief' for borrowers as RBA holds

Speaking after the board meeting on Tuesday (4 April), RBA governor Philip Lowe said: “The board recognises that monetary policy operates with a lag and that the full effect of this substantial increase in interest rates is yet to be felt. The board took the decision to hold interest rates steady this month to provide additional time to assess the impact of the increase in interest rates to date and the economic outlook...

“The board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target. The decision to hold interest rates steady this month provides the board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty. In assessing when and how much further interest rates need to increase, the board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market.

“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”

Finsure chief executive Simon Bednar stated that the RBA has been signalling an end to its current tightening cycle as the inflation rate slows to an eight-month low.

“We may see the cash rate peak at 3.85 per cent after rising from the record low of 0.10 per cent,” Mr Bednar said.

“Borrowers who have had to absorb the RBA’s rate rise blows since May 2022, can be more confident that they are unlikely to endure much more pain.

“Of course, the RBA will be guided by upcoming economic data, particularly the March quarterly inflation figures to be released on April 26.” 

Mortgage Choice CEO Anthony Waldron said the RBA’s decision will be met with “a collective sigh of relief” from the nation’s borrowers and those looking to buy.

“The question now will be if today signals an extended pause to cash rate rises?” Mr Waldron said. 

Connective executive director Mark Haron said the pause has given brokers another window to proactively reach out to clients to support them through this complex and volatile lending environment. 

"Remember a ‘hold’ in rates is temporary – we don’t know when the next movement will be, but it will come and brokers have never been more valuable.," Mr Haron added. 

Loan Market national director Andrew Thompson said: “Today is the first time in 11 meetings that the RBA Board has decided to hold on the cash rate. I don’t think the pause in the cycle will lead borrowers to relax; we’ll continue to see refinancers in the market over the coming quarter, as well.”

Homeloanexperts.com.au founder Otto Dargan said it was a "prudent decision" by the RBA to hold interest rates this month. 

"After 350 basis points of rate rises, it's time to take a break and wait to see how this affects the economy. Inflation has started falling, many borrowers are coming off fixed rates soon and some overseas banks have collapsed. Increasing rates this month would risk overshooting, causing unnecessary financial distress for borrowers," Mr Dargan said. 

Co-founder and chief executive of mortgage brokerage Shore Financial, Theo Chambers, said in early March, major bank economists dismissed the possibility of the cash rate remaining unchanged despite Mr Lowe's open-mindedness on the matter. 

What led to the pause? 

This move was foreshadowed by the RBA and marked the first time that the central bank has decided to pause in a year (since April 2022, when interest rates sat at the historical low of 0.1 per cent).

The RBA’s minutes from its March meeting flagged the possibility of a pause in April: “Members agreed to reconsider the case for a pause at the following meeting, recognising that pausing would allow additional time to assess the outlook for the economy.”

Additionally, the consumer price index (CPI) fell for the second consecutive month to 6.8 per cent in February and was expected to influence the central bank’s decision for April.

Forecasts for the April decision were split among the major banks, with the Commonwealth Bank of Australia (CBA) and Westpac foreseeing a pause in April, while ANZ and NAB predicted a further 25-bp rise.

Ahead of the rate call, CBA conceded that the RBA deciding on a pause or a hike was a “very close call”.

Westpac chief economist Bill Evans has stated that the major bank still expects a final 25-bp increase at the May board meeting, bringing the terminal cash rate to 3.85 per cent despite the move to pause. 

[RELATED: Banks forecast pause in April]