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Interest rates Australia: April 23 will determine whether the cash interest rate reaches 4.1 percent


While the Reserve Bank of Australia announced a 10th consecutive rate hike on Tuesday, the size of the rate carnage will depend on one key figure: Australia’s inflation.

In 49 days, when the January quarterly consumer price index (CPI) update is released by the Australian Bureau of Statistics, Australians will get a sense of whether the spot rate will finally settle in or continue to rise.

Experts say there’s a number we should pay attention to.

As it stands, Australia’s CPI is at a 30-year high, reflecting annual growth of 7.8 percent for the December 2023 quarter.

Australia’s official cash rate (3.6 per cent) is also the highest since June 2012, up 350 basis points from less than a year ago in April 2022.

While most economists and analysts have forecast another rate hike of 25 basis points for April 2023, whether the spot rate will reach 4.1 percent in May depends on the January 2023 quarterly CPI update.

The director of Monash Business School’s Bachelor of International Business, Professor Mark Crosby, told NCA NewsWire that if the CPI stays the same or drops only marginally, households could be more or less certain of a 12th consecutive cash rate hike on May 2.

“That’s going to be the big issue whether they continue or not,” he said.

“Monthly inflation rates are falling, but quarterly rates are more reliable.”

A “significantly” lowered CPI below 7 percent, or “hopefully” in the 60s, could mean that April cash rate hikes stop. The first data is positive; the monthly CPI indicator for January reported that year-on-year growth had moderated slightly to 7.6 percent.

However, Professor Crosby says it will have to fall further to make a difference.

“If (the CPI) is 7.6 percent, they’re going to start to worry, but it’s starting to show signs that it’s on a downward trend,” Professor Crosby said.

“Three months isn’t a long time, but if it goes from 7.8 to 7 percent, I think that’s enough to say, ‘Okay, let’s see where inflation and the economy go over the next two to three years. ‘. months.’

“The only leverage they have to lower interest rates is interest rates, and that’s their job.”

According to analysts from the big four banks, Westpac, ANZ and NAB think cash rates will peak at 4.1 percent. The Commonwealth Bank has now tipped a high of 3.85 percent.

On Tuesday, Mr Lowe said the RBA board expected “further monetary policy tightening”, but his wording was different from the language he used in his February statement.

Just four weeks ago, Mr Lowe wrote that “the board expects further rate hikes to be necessary in the coming months”.

The subtext was that it would take multiple rate hikes to rein in the all-important CPI figure.

David Bassanese, Betashares chief economist, said the language used by Mr Lowe was “open-ended” on purpose.

Mr. Bassanese believes the RBA will pass another 25 basis point hike in April before the bank takes a break.

“Last month they expected at least two more rate hikes and they wanted to signal that to the market,” he said.

“While this month’s statement basically tells us to be open to the idea that it can be one and done.”

Mr Bassanese said the ultimate goal of the RBA is still to reduce inflation, something that Mr Lowe himself said the RBA was “resolutely determined” to do.

“They will make the mistake of doing too much; the consequences of letting inflation entrench are more costly than over-tightening because they can always change course,” said Mr. Bassanese.

“When dealing with uncertainty, the policy of least regret is to avoid something that would be the most costly outcome.

“Right now, the most costly outcome would be to do too little rather than too much.”

Reserve Bank

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.