RBA provides some relief, but for how long?

As we digest the news of the RBA pausing rates we wonder if it might have been an 11th hour decision – with retail & inflation numbers last week being the straw that broke the camel’s back – then to confirm the hold the Porter Davis disaster.  But in avoiding an 11th monthly increase it’s finally a glimmer of hope for a lot of Australians.
In making its decision, the central bank board did still stress that the battle had not been won yet, and that this pause was a chance to take stock, saying in its notes that “…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.”
It also warned that even if yesterdays decision was to hold rates steady, it didn’t mean that the RBA was done with rate rises altogether, and would continue to monitor what needs to be done to beat inflation.

In my opinion the RBA’s decision yesterday to pause reflects inflation having peaked. Future rises are conditional on households continuing to reduce non-essential spending.  They said that there is evidence that a combination of higher interest rates, falling house prices and higher cost of living pressures is leading to a substantial slow down in household spending. 

To markets and there was little reaction from the Australian share market after the RBA announcement or even today.  But overseas and global markets pulled back as recession fears were revived after further weak US data.  US job openings in February dropped to the lowest level in nearly two years, ahead of the all-important US non-farm payroll report on Friday.

There's no doubt that we're in interesting economic times, and over the past few weeks I've had some really interesting conversations on Money News that you might find interesting:

  • Shane Oliver from AMP The RBA has paused the rate cycle but did make the point that this might not be it in terms of rate hikes – should mortgage holders right now be alert, but not alarmed?
  • Tim Lawless from CoreLogic, Far from the dire predictions of 15-20% house price drops, CoreLogic figures show a national bounce begin to set in.

Of course you can always tune in to Money News live 7pm Monday-Thursday on the Nine Radio network, or grab the podcast whenever suits you!

On a different note, we wish you a safe and restful Easter – but from a budget point of view keep a close eye on petrol prices, we are expecting unleaded to jump above $2 a litre in coming days.