To the relief of Australians struggling with cost-of-living pressures, the Reserve Bank of Australia (RBA) decided to halt its record-breaking run of interest rate hikes, conceding to signs that both inflation and economic growth are slowing.
“The move to maintain the cash rate at 3.6 per cent following ten consecutive rate hikes comes just days after monthly inflation data showed price increases slowed to 6.8 per cent in the year to February, below consensus forecasts,” says Deloitte Access Economics Partner Stephen Smith.
It also comes a week after ABS data showed retail trade grew by just 0.2 per cent in February, which represents an overall decline in the volume of goods sold after accounting for inflation and population growth.
“As retail figures also went backwards in the December quarter, there is evidence the retail sector is in recession,” Mr Smith said.
The “decision will not just be welcomed by millions of mortgage holders struggling under the burden of rising mortgage repayments. Businesses of all sizes, many of which amassed large debts throughout the pandemic, have been struggling with higher interest rates and the deteriorating economic environment,” he said.
“The RBA’s decision to pause rates is welcome. The effect of 10 rate rises is still working its way through the economy and there are still hundreds of thousands of pandemic-era mortgages fixed at low rates that will revert to variable over the coming year.
“Meanwhile, the heightened uncertainty in the global financial system following the collapse of multiple banks has increased the chance of a black swan event shaking the global economy.
“Although Australians will approve of today’s monetary policy decision, most will need to keep a close eye on the household budget for the remainder of the year,” Mr Smith said.
Ai Group Chief Executive Innes Willox says, “Australia’s businesses and households will welcome the Reserve Bank Board’s decision to leave interest rates unchanged for the first time since May last year.”
“While consumer prices and input costs are still running too high, there are strong signs that the economy is slowing and that inflation has peaked,” he said.
“With the full impacts of earlier rate rises yet to flow through and more mortgagees coming off fixed home loan rates, it makes sense for the Reserve Bank to at least pause to allow it to evaluate whether further rate rises will be needed to ensure inflation is tamed.
“Critical to this evaluation will be the degree of restraint in price setting by businesses and governments, in wage negotiations and the wage determinations of the Fair Work Commission,” Mr Willox said.