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It came as no surprise that the Reserve Bank of Australia (RBA) would make the decision to hold the official cash rate at 4.1 per cent during its April meeting.
The statement following the decision reiterated the board’s cautious outlook towards the sustainability of easing inflation along with emerging economic risks manifesting overseas, particularly with US President Donald Trump’s tariffs set to hit this week.
Reacting to the decision, senior mortgage broker at Home Loan Experts, Jonathan Preston, said it was his opinion that “the RBA has become a political weapon”.
“We should never have had the last rate hike [in November 2023]. The government spending has horrifically distorted inflation, and then there was the horrific guidance from 2021 about no rate hikes,” Preston said.
“It has been horror show after horror show from the RBA.
“I believe we should have rate cuts now but the RBA is too weak and won’t do it, for political reasons. As such, I expect the rate-cutting cycle to re-commence after the election.”
This isn’t the first time the RBA has come under scrutiny in regard to political pressure from the federal government; however, RBA governor Michele Bullock denied these claims during the post-meeting press conference.
Bullock, when confronted with the notion that the RBA has come under political pressure particularly from Treasurer Jim Chalmers, was quick to shoot down those claims.
“I do speak with the Treasurer regularly. I’m not going to comment on any particular private conversations because they are private,” Bullock said.
“All I would say… is that I have a very respectful relationship with the Treasurer, and I personally and the board, have not felt under particular political pressure to do anything.
“We are focused on the job.”
Commenting on the outlook for the RBA, Judo Bank’s chief economic adviser Warren Hogan and economist Matthew De Pasquale said the only thing to be sure of is that “the level of uncertainty the RBA board is facing has gone up substantially”.
“Geopolitical issues, tariffs, improved household incomes, tricky domestic business conditions, and a historically tight labour market are all contributing to both upside and downside risks to the RBA’s goal of sustainably returning inflation to the midpoint of the target,” they said.
“This uncertainty could cause the RBA to remain on hold longer than the market expects and there remains a plausible scenario where the next move in rates is up.”
According to the duo, the chances of another rate cut in May stand at around 20 per cent, despite markets pricing in a 70 per cent chance.
“Given the February Statement of Monetary Policy (SoMP) forecasts do not have inflation sustainably returning to 2.5 per cent, a cut in May would likely require greater progress on inflation and the labour market than predicted in the SoMP…,” they said.
“Also, with the election having passed, the RBA is unlikely to be under the same political scrutiny to cut rates it faced heading into the February policy meeting.”
Others are a little more optimistic in their forecasts, such as the big four bank economists, who all see a further rate cuts over the remainder of the year.
CBA, Westpac, and NAB all predict a May rate cut, with the two largest banks expecting another two to bring the cash rate down to 3.35 per cent, while NAB has four pencilled in for a cash rate of 3.1 per cent. ANZ is currently the only major bank to only have one more rate cut (set to occur in August) in its forecast.
Westpac chief economist Luci Ellis said the “global picture has deteriorated” since the February meeting; however, the RBA has not concluded that this will affect Australia materially.
“It assesses that it is well-placed to respond to global developments should this be needed,” Ellis said.
“The new Board therefore remains focused on the domestic data flow. Inflation has tracked in line with the RBA’s February forecasts and on most measures is now inside the 2–3 per cent target range.
“However, the Board is not fully confident of further progress or that inflation will remain sustainably at the 2.5 per cent target midpoint. Given this high bar on its confidence, it is waiting for further information, including on the labour market and consumption, as well as inflation.”
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