April cash rate holds at 3.60%

The Reserve Bank of Australia (RBA) has broken its streak of 10 consecutive rate hikes and decided on a pause for April, leaving the official cash rate at 3.60 per cent.

This marked the first time the RBA has held the cash rate since April 2022, back when the official cash rate was at a historical low of 0.1 per cent.

Speaking after the board meeting on Tuesday (4 April), 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.”

Reacting to the rate decision, CreditorWatch chief economist Anneke Thompson commented: “For the first time since the start of this monetary policy tightening cycle, the Reserve Bank of Australia (RBA) was faced with a set of data that gave it no clear indication of which way to move.

“Today’s decision will buy the RBA one more month to assess incoming data before inflicting any more pain on Australian borrowers.

“The Australian economy is particularly sensitive to interest rate rises, more so than the US or Europe, due to the volume of borrowers on or soon moving to variable interest rates.

“This relatively unique factor is probably the main one allowing our central bank to pause, where others are still tightening.”

PropTrack Senior Economist Eleanor Creagh commented on the decision: "With the Reserve Bank operating under the “policy of least regret” and given that the full effect of the higher interest rates is yet to be felt, the RBA has paused to allow more time to better assess how economic conditions unfold."

She further stated there is evidence that the RBA's substantial tightening is already weighing on households. 

"It takes time for higher interest rates to fully impact household cash flows. In this tightening cycle, with so many borrowers having taken advantage of record low fixed rate mortgages throughout Covid yet to feel the full impact of rate rises, this is especially the case.

"Many of these borrowers face large increases in mortgage payments as their fixed-rate terms expire in the coming months. As such, it is expected that consumer spending will slow sharply as the full impact of higher interest rates catches up," Ms Creagh said. 

CoreLogic research director Tim Lawless said the decision to pause sends a clear message that the RBA are ready to take stock and assess the economic impact of the rapid rate hiking cycle to date. 

"While a pause doesn’t necessarily mean interest rates hikes are ‘done’, it is likely the tightening cycle is close to topping out.

"An increased level of certainty around the rate hiking cycle should flow through to an improvement in consumer sentiment, which has been stuck at levels seen during the worst of the Global Financial Crisis and early phase of the pandemic," Mr Lawless said. 

What led the RBA to this decision? 

Mr Lowe had foreshadowed that the RBA was considering a pause in rates following the March cash rate decision, hinting that the central bank was “closer to the point where it will be appropriate to pause interest rate increases to allow more time to assess the state of the economy”.

The members of the RBA board had already begun considering an April rate pause at the March meeting, given the collapse of three US banks and the issues at Credit Suisse.

Mr Lowe stated that the board would carefully assess key economic data to be released prior to the April board meeting, specifically referencing monthly employment, inflation, retail spending, and business indicators.

Indeed, the monthly consumer price index (CPI) declined for the second consecutive month to 6.8 per cent in February and is believed to have influenced the Reserve Bank’s decision for the April meeting.

The major banks were split on their cash rate forecasts for April, with the Commonwealth Bank of Australia (CBA) and Westpac forecasting a pause, while ANZ and NAB predicted the central bank would further lift the cash rate.

CBA noted in its latest market update: “In what we believe is a very close call, we now expect the RBA to leave the cash rate on hold at 3.6 per cent at the April board meeting.”

Westpac chief economist Bill Evans also predicted a pause in the tightening cycle, however, he noted that this would not mark the end of the cycle altogether, with Westpac still expecting a final 25-bp rise at the May board meeting.

[RELATED: Majors split on RBA rate decision for April]