Hopes remain high for mortgage relief in May despite a “cautious” Reserve Bank of Australia keeping interest rates on hold.

As widely expected by economists, the RBA’s new monetary policy board held the cash rate steady at 4.1 per cent at its inaugural meeting on Tuesday.

Markets had priced in just a 10 per cent chance of a cut, following hawkish commentary from governor Michele Bullock and other RBA officials after the central bank’s February rate cut.

In its post-meeting statement, the board said it needed to be more confident that inflation was returning sustainably to the midpoint of its two-three per cent target band.

“It is therefore cautious about the outlook,” the statement said.

US President Donald Trump’s tariffs were impacting confidence globally and adding uncertainty to the outlook abroad, the board noted.

That was likely to weaken economic activity but the impacts on inflation were less certain, the statement said.

“The board is resolute in its determination to sustainably return inflation to target and will do what is necessary to achieve that outcome.”

Inflation did show further signs of easing in monthly figures released last week, with the headline consumer price index slowing from 2.5 to 2.4 per cent in February, below the midpoint of the target band.

But the RBA will be looking for more proof in less volatile quarterly inflation data due to be released before its next meeting in May.

Following Tuesday’s decision, markets were pricing in 17 basis points of cuts for the May meeting – or about a two-thirds chance.

Its decision to hold steady was rooted in uncertainties surrounding the effects of its February cut, what the outcome of the federal election means for government spending, and the outlook for tariffs, said BDO Economics Partner Anders Magnusson.

“The RBA has taken a cautious approach by holding the cash rate and waiting for the March quarter CPI release and the results of the upcoming election,” he said.

“In the meantime, it will be better understanding the growing uncertainties from the Trump administration, international conflict and extreme climate events.”

The board reiterated its concerns that tightness in the labour market could risk keeping inflation higher for longer, despite a surprise drop in jobs in labour force figures released by the Australian Bureau of Statistics in March.

“Despite a decline in employment in February, measures of labour underutilisation are at relatively low rates and business surveys and liaison suggest that availability of labour is still a constraint for a range of employers,” the statement said.

The RBA noted domestic consumption appeared to be recovering, although some sectors continued to report a weakness in demand.

That was borne out in retail sales figures released by the ABS earlier on Tuesday.

Spending picked up 0.2 per cent pick-up in trade in February, slightly below consensus expectations for a 0.3 per cent rise in spending, in a further sign that household consumption is recovering gradually.

Food-related spending drove the rise, with household goods dropping for a second-straight month, said ABS head of business statistics Robert Ewing.

“Following promotion-based growth across the December quarter, spending on household goods continued to moderate with lower discretionary spending to begin the year,” Mr Ewing said.

The figures don’t materially change the outlook for consumer spending, said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.

But low unemployment and real wages growth bode well for future consumption.

“Last week’s federal budget also contained more support for households through extended utilities rebates and tax cuts, which further shores up the outlook if these policies are legislated,” he said.

 

Jacob Shteyman
(Australian Associated Press)