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By Brett Warren

RBA puts live option on hold as inflation slows once more

The upcoming Reserve Bank cash rate decision is a close call, but the latest inflation figures may be enough to prompt the RBA to hit the brakes next Tuesday.

In Australia, inflation is moving in a positive direction, with February's annual figures at 6.8%, down from 7.4% the previous month and 8.4% in December, according to the ABS's new monthly dataset.


The monthly CPI indicator was the last piece of domestic data the Board needed to see before the April meeting, with the others being retail trade figures, employment, and business confidence.

While this month's employment and business confidence data were strong, giving the RBA room for another hike, the Board is ultimately seeking an opportunity to pause and allow time for the previous rate hikes to take effect.

Additionally, it may want to assess the potential risks arising from recent global volatility.

With ten consecutive rate hikes, today's inflation figures may be the data the RBA needs to pause.

Rate hike is not off the cards entirely

Inflation remains high at 6.8%, and it's probable that the Board will need to implement at least one more rate hike.

As a result, they may proceed with another hike in April to accomplish their goal.

If this occurs, the cash rate will reach 3.85%, the highest level since April 2012, with a 0.25 percentage point increase.

As a consequence, the typical borrower with a $500,000 loan at the onset of the hikes in May of last year may see their monthly mortgage payments rise by a total of $1,059 soon.

This translates to a 45% increase in their monthly repayments over the course of 12 months.

0.25% HIKE IN APRIL: Increase in monthly repayments

Loan size April increase Total increase May-April 
$500,000 $78 $1,059
$750,000 $117 $1,588
$1 million $156 $2,117


As the RBA contemplates a pause, it's worth noting that both the US and UK central banks implemented a 0.25 percentage point hike to official rates last week, despite recent banking collapses and acquisitions.

How Australia’s inflation and cash rate compare to other countries

Official rate – start of 2022 Official rate – today Last meeting Current annual inflation rate
Australia  0.10% 3.60% +0.25% pts, 7 March 23 6.8%
United States 0.00% - 0.25% 4.75% - 5.00% +0.25% pts, 22 March 23 6.0%
European Union* 0.00% 3.50% +0.50% pts, 22 March 23 8.5%
United Kingdom 0.25% 4.25% +0.25% pts, 23 March 23 10.4%
Canada 0.25% 4.50% No change, 8 March 23 5.2%
New Zealand 0.75% 4.75% +0.50% pts, 22 Feb 23 7.2%
Japan -0.10% -0.10% No change, 10 March 23 3.3%


Nevertheless, Australian households are more vulnerable to official rate adjustments since the majority of borrowers are on variable rates and property prices have skyrocketed, leading to relatively high levels of indebtedness. research director, Sally Tindall, said:

“This will be a line-ball call for the RBA. 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.

The RBA has already fired off 10 rate hikes, but the average household is probably still only up to their seventh or eighth rise.

Household budgets that are already at the end of their tether might still tip into the red in the next couple of months even if the cash rate stays 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.

If you’ve got a mortgage, plan for at least one, potentially even two more RBA hikes in the next few months.

If your budget for these hikes and they don’t materialise then you may decide to tip it into your mortgage anyway."

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.
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