Australian mortgage-holders may be in for an early Easter long weekend treat as two out of the four major banks predict the RBA will pause the rate tightening cycle at next week’s 4 April meeting.

Over the past couple of weeks, economists and the RBA have been keeping a close eye on four key data sets that influence monetary decision: unemployment, NAB business sentiment, retail trade, and inflation.

Two of the ingredients released (unemployment and business sentiment) supported another hike, while retail trade and inflation posted softer than expected results, indicating the RBA may hold fire in April. 

While retail sales jumped a modest 0.2% in February, it’s still too high to halt inflation, which clocked in at 6.8% over the year to February 2023. 

While this remains well above the RBA's ideal 2-3% target range, it is down significantly from 7.4% in January and the peak of 8.4% in December.

The ‘cause for a pause’ is also driven by the uncertainty surrounding the global economy - namely the collapses of Silicon Valley Bank and Signature Bank in the US, and UBS' acquisition of Credit Suisse.

Furthermore, when announcing the March decision, RBA Governor Philip Lowe softened his language about the future path of rate hikes. 

“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,” Mr Lowe said.

Shore Financial Co-Founder and CEO Theo Chambers said the decrease in inflation suggests we may be reaching the peak of interest rate hikes, although it’s likely we’re not there yet. 

“It’s entirely likely that the Reserve Bank of Australia will still adopt an aggressive approach on interest rates to curb inflation,” Mr Chambers said.

“The US Federal Reserve’s track record on increasing interest rates serves as a lesson to us in Australia. 

“Financial markets are anticipating another 0.25% rate increase in the next month, which I believe will come to fruition."

Given all of the above, here are the up-to-date forecasts from the big-four banks.

Westpac economists stick to their guns: RBA to pause

Since 17 March, Westpac has continued to support a rate pause in April given the recent change in the global financial landscape and the RBA’s March minutes indicating a possible pause was on the horizon.  

“We confirm the forecast that the Board will decide to pause at the April meeting,” Mr Evans said.

“That move is unlikely to see the end of the tightening cycle since we expect a final 25 basis point increase at the May Board meeting.

“Signalling aspects of the decision process at the upcoming meeting is something I have not seen in previous Board Minutes. This approach indicates that there is arguably a preference for pausing.”

Westpac predicts the cash rate to reach a peak of 3.85% before the RBA makes 1.50% worth of cuts throughout 2024 - 2025.

CommBank economists forecast a pause despite a 45% chance of an increase

CommBank recently revised its forecast, which was previously for a 25 basis point hike in April, to predict that a pause is more likely to occur instead. 

The major bank believes there’s a 55% chance the RBA will pause before potentially hiking once again in May if economic data makes the case. 

“The actions of many other central banks globally over the past two weeks lend weight to the RBA continuing to tighten policy despite some concerns within pockets of the global banking system,” said Gareth Aird, CBA Head of Australian Economics.

“But the domestic economy is now showing sufficient signs of slowing and we expect the RBA Board will judge that a pause in the tightening cycle is the appropriate move in April."

ANZ economists remain on trend forecasting 25 basis point hike

On the other side of the coin, ANZ Senior Economists Catherine Birch and Felicity Emmett are still forecasting 25 basis point rate hikes at both the April and May meetings.

This would mark the end of rate rises, though the RBA will maintain a holding pattern until late 2024.

“While the RBA has signalled its intention to pause at some point in coming months, we continue to think that the data is not yet consistent with a pause,” Ms Birch and Ms Emmett said.

“We continue to expect a 25 basis point hike at the RBA’s April meeting and a terminal cash rate of 4.1%.”

ANZ does not expect the RBA to start easing until a 25 point cut in November 2024.

NAB economists tip a 25 basis point increase

NAB has recently revised its monetary policy forecast, indicating there should be one more 25 basis point hike in April (taking the peak to 3.85%) before the RBA hits pause.

NAB economists have described the April meeting as a “line-ball decision.” 

“The key question for the RBA Board is whether the current level of interest rates is now sufficiently high to ensure inflation sustainably returns to target in a reasonable time frame,” NAB economists said. 

“In part, this depends on wage pressures remaining contained and expectations for inflation staying anchored.

“Based on the RBA’s statements and forecasts, a peak cash rate of 3.60% is unlikely to be seen as sufficiently restrictive by the Board, necessitating one more increase before a pause to assess how the effects of prior monetary policy tightening flow through.”

NAB is forecasting rate cuts in the first quarter of 2024, bringing the cash rate back down to 3.10% as the economy slows.


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