On Thursday (AEDT) the US Federal Reserve hiked its policy rate by 25 basis points to 5.00%.

The RBA board will meet Tuesday-week on 4 April to decide if the cash rate goes up, down, or stays the same.

Despite 10 consecutive hikes to the cash rate - the most elongated and sharpest tightening in Australian history - CBA economist Gareth Aird (pictured below) said much of this is yet to be felt by the mortgagor.

"Only around 45% of the increase in the cash rate to date had passed through to scheduled mortgage repayments at the end of 2022," Mr Aird said.

This gives credence to the 'pause' camp. 

This may be partly due to banks' responsible lending obligations - they are required to wait 20 days from rate rises becoming effective before they increase the repayments.

This also means a higher proportion of the repayment goes towards repaying interest, rather than principal, for a short period - this could lengthen the life of the loan.

As Savings.com.au has doggedly pursued for 10 months now, the RBA increases the rate on the first Tuesday of the month; from there, banks announce something a day or two later; the rate change is not effective until a few weeks later; and 20 days after that repayments change. 

Some lenders such as Unloan wait even longer before rate rises take effect, often operating on a two-month lag, which pushes the repayment increase out further.


What are the ingredients in the April RBA rate cake?

There are four ingredients the RBA will look at to form part of its April monetary policy decision.

Upcoming Data Release Date CBA's call Supports rate pause?
Retail Trade February 28 Mar -0.3% Yes
Monthly Inflation (Annualised) 29 Mar 0.5% fall to 6.9% Yes
Released Data Result
NAB Business Sentiment 14 Mar 1pt fall to 17 (still high) No
Unemployment February 16 Mar 0.2% fall to 3.5% No

Two of the ingredients released support another hike, while the two forthcoming are forecasted to support a rate pause.

It should be noted the unemployment data was stronger than anticipated, with data continuing to defy forecasts.

However, Mr Aird said CBA's position as Australia's largest bank puts it at an advantage.

"At CBA we have access to a lot of internally generated data, which improves the accuracy of the forecasting process," he said.

"Our RBA call for the April Board meeting will be conditional on the outcomes of the data next week - we currently have a 25 basis point hike in our profile in April for a peak in the cash rate of 3.85%."

If forthcoming economic data is stronger than expected, Mr Aird said the RBA may well press on with another 25 basis point hike.

"We continue to expect 50 basis points of rate cuts in late 2023 and a further 50 basis points of easing in the first half of '24," he said.

This is slightly at odds with its trillion-dollar bank compatriot Westpac, with its chief economist Bill Evans saying the RBA will pause in April.

The RBA board meeting minutes for February hint at this being the case as well.

“Members agreed to reconsider the case for a pause at the following meeting, recognising that pausing would allow additional time to reassess the outlook for the economy,” the minutes read.

Wealth data released on Thursday shows net worth per capita took a hit in the December quarter, largely due to falling house prices and fluctuating super balances, which were partially offset by a rise in over $32 billion in deposits thanks to extra interest on deposit accounts.

Data suggests (table below) consumers are willing to draw down on their savings buffers accumulated during the pandemic before changing their spending habits, with credit card and retail spending still elevated.


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Update resultsUpdate
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Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of . View disclaimer.

Photo by Akshay Chauhan on Unsplash

Photo of Gareth Aird supplied by CBA Media

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