The Reserve Bank of Australia (RBA) may very well keep rates on hold, or even deliver an interest rate cut when it meets next week.
Official inflation figures from yesterday showed Australia was moving in the right direction and that the interest rate hikes were working.
The annual inflation read was 6.8 per cent in February, a drop from 7.4 per cent the month prior, and was the final piece of domestic data the RBA board wanted to see before the April meeting.
“The arguments for and against a hike are both strong. However, if the RBA is ultimately looking to hit the pause button, this latest round of inflation data will give them cover to take a breather,” Tindall said.
“The RBA has already fired off 10 rate hikes, but the average household is probably still only up to their seventh or eighth rise.”
Tindall said household budgets, already at the end of their tether, might still tip into the red in the next couple of months, even if the cash rate stayed put in April.
“If the RBA keeps the cash rate on hold, borrowers should not assume that’s the end of the hikes. Inflation might be moving in the right direction but it’s unlikely to come all the way back down below 3 per cent without further intervention,” Tindall said.
“If you’ve got a mortgage, plan for at least one, potentially even two more RBA hikes in the next few months. If you budget for these hikes and they don’t materialise, then you may decide to tip it into your mortgage anyway.”
Rate hike not off the cards entirely
At 6.8 per cent, inflation is still too high and at least one more hike is likely to be needed, so the RBA may press ahead in April in a bid to get the job done.
Another 0.25-percentage-point increase next week would take the cash rate to 3.85 per cent – the highest level since April 2012.
If that happened, the average borrower with a $500,000 loan at the start of the hikes last May could soon be paying a total of $1,059 more a month on their mortgage.
That’s a 45 per cent increase to their monthly repayments in 12 months.
Increase in monthly repayments
Total increase May-April