Westpac makes major call on rates: Bank expects RBA to hold off on increase in April before a rise in May to 3.85 per cent #Westpac #major #call #rates #Bank #expects #RBA #hold #increase #April #rise #cent #englishheadline


Westpac has tipped the Reserve Bank of Australia will hit pause on raising the cash rate next month after 10 consecutive increases, offering some respite for mortgage holders.  

The bank’s chief economist Bill Evans on Friday cited a change in language from RBA Governor Philip Lowe as a key factor behind the prediction.

Mr Evans last month had forecast the RBA would lift the cash rate to a peak of 4.1 per cent in May and then keep it unchanged in June.

However, Mr Lowe’s comments in announcing March’s 25 basis point rise to 3.6 per cent and further remarks in the days after has led to a change of view at Westpac.

Mr Evans now anticipates the pause in April will be followed by a 25 basis point increase in May to 3.85 per cent – the last rise in this tightening cycle. 

It marks a return to a view that had been held late last year that April would be the month the cash rate would be left unchanged.  

“Prior to the Governor’s surprisingly hawkish response to the December quarter Inflation Report where he effectively signalled consecutive rate hikes in both March and April, Westpac had expected that there would be a pause in April with a final hike in May,” Mr Evans said. 

“The Governor has had an ‘about-face’ following the March Board meeting. He responded to the disappointing growth print for the December quarter; the slower than expected wages gain in the December quarter; and the 0.4 per cent fall in the monthly inflation index in January.

“In the Statement following the March decision he noted: ‘The Board expects that further tightening of monetary policy will be needed… assessing when and how much further interest rates need to increase…’. So, the tentative signal in March was much changed from the confident signal in February.

“Following a speech the next day (March 8) the Governor noted that a pause in April would be considered in the light of the data flow out to the Board meeting on April 4 – specifically: the business surveys; the February employment report; the February retail sales report; and the monthly inflation indicator report for February.”

Australia could see a cut in interest rates next year

During an address to the AFR business summit a day after March’s rate rise, Mr Lowe indicated the RBA were getting closer to holding off on further increases.

“As you increase interest rates higher, you get closer to the point where it is appropriate to stop for a while and assess the flow of data,” he said.

“We’ve done a lot in a short period and at some point it will be appropriate to sit still and assess it.”

The cash rate had been sitting at the historic low of 0.10 per cent in April last year before the RBA embarked on the 10 consecutive increases to curb inflation.

On a $500,000 mortgage, the increases have added an extra $983 a month to mortgage repayments, while $1474 a month has been added to a $750,000 mortgage and an extra $1966 a month to a $1 million mortgage.  

English Headline

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