The decision
After 10 consecutive interest rate rises totalling 3.50 percentage points, at its April meeting the Reserve Bank Board decided to hold the cash rate at 3.60 per cent, with the pause providing some short-term relief to Australian mortgage holders.
Key factors that support the basis for the decision
The key reason that the Board has decided to hold rates this month is due to monetary policy operating with a lag, meaning that the full impact of previous rate increases takes time to show in the economy. By holding interest rates at 3.60 per cent, the Board has a month to observe the full impact of their prior rate rises and to assess the outlook for the economy.
What this indicates for future rate decisions
It seems that this will not be the end of rate rises, however. In his statement on Tuesday, Reserve Bank Governor Philip Lowe said that “further tightening of monetary policy may well be needed to ensure that inflation returns to target”.
The CPI indicator showed that inflation fell from 7.4 per cent last month to 6.8 per cent this month, and this is something the Reserve Bank is watching very closely. In determining how much further interest rates will rise, the Bank will consider “developments in the global economy, trends in household spending and the outlook for inflation and the labour market.”
The Board forecasts that inflation will continue to fall in 2023 and 2024 and will return to the target range around 3 per cent in mid-2025.