Reserve Bank of Australia Holds Off Interest Rate Rise in April

A man walks past the Reserve Bank of Australia in Sydney, Australia, on June 7, 2022. Muhammad Farooq/AFP via Getty Images

The Reserve Bank of Australia (RBA) has decided to pause its interest rate hiking cycle in April, providing Australian mortgage holders and small businesses a brief reprieve as they navigate challenging economic conditions.

At its board meeting on April 4, the central bank announced that it would keep the official cash rate stable at 3.6 percent after lifting it for 10 consecutive months.

The board said it recognised the lag effect of the monetary tightening policy and the fact that the full impact of the significant increase in interest rates since May 2022 had not flowed into the economy.

“The decision to hold interest rates steady this month provides the board more time to assess the state of the economy and the outlook in an environment of considerable uncertainty,” RBA governor Philip Lowe said.

Governor of the Reserve Bank of Australia Philip Lowe addresses the National Press Club in Sydney, Australia, on Feb. 2, 2022. Lisa Maree Williams/Getty Images

The board also took note of the recent drop in inflation and the slowdown in economic activities in making the decision.

“There is further evidence that the combination of higher interest rates, cost-of-living pressures and a decline in housing prices is leading to a substantial slowing in household spending,” Lowe said.

While the board was alert to the risk of a wage-price spiral in the labour market, a situation in which wage increases cause prices to go up and eventually lead to more wage rises, it believed wage growth was still consistent with the inflation target.

A Brief Reprieve for Home Owners and Small Businesses

The RBA’s decision offers temporary but much-needed relief for many Australian homeowners whose mortgage payments have skyrocketed since last year.

According to the financial comparison website Finder, an increased number of Australians are having difficulty paying their mortgages.

Finder’s research revealed that 36 percent of Australians were struggling with their home loan in March, up from 24 percent in May 2022 when the RBA first lifted the interest rate.

To show the impact of interest rate hikes on mortgage holders, the company cited a monthly repayment increase of $1,111 (US$751) for an average homeowner with a $600,000 loan.

Meanwhile, the business community welcomed the interest rate pause as they breathed a sigh of relief.

David Alexander, the chief of policy and advocacy at the Australian Chamber of Commerce and Industry–Australia’s largest business association, said the RBA had made the right choice in suspending the rate hikes.

“The 10 consecutive rate increases since May have been difficult for households and small businesses alike,” he said.

“A pause will help small businesses take a breath as they adjust to the challenging economic environment of high energy costs and high inflation.

“While today’s decision is encouraging, the challenge for policymakers lies in navigating the narrow path towards a soft economic landing and addressing the inflation challenge.”

The RBA May Resume Interest Rate Hikes in Coming Months

As inflation still remains high, the RBA governor said further interest rate hikes might be needed to bring it down to the two to three percent target band.

“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.”

Centre for Independent Studies chief economist Peter Tulip believed the RBA would continue its monetary tightening policy as inflationary pressures in the economy were growing, especially with regard to wages, rents, utilities and inflation expectations.

“In not tightening to put a lid on these pressures, they will grow,” he told The Epoch Times.

“By postponing the necessary tightening, the RBA is creating the need for even large rate increases in the future.”

Similarly, ANZ Bank economists also expected to see more interest rate increases under the current inflation outlook.

“We continue to think inflation will prove persistent enough to require the RBA to tighten monetary policy further in the months ahead,” they said.

“In our view, the question is not so much one of ‘where’ the RBA gets to (we still favour 4.1 percent as the terminal rate), but ‘when’ it gets there.”