RBA ‘no knight in shining armour’ for mortgage holders
Borrowers may be reassured that interest rates will remain steady for now, but with the inflation dragon still on the loose, they should not expect the Federal Reserve to come to their rescue any time soon.
HSBC chief economist Paul Bloxham said during economic slowdowns the central bank was often the “knight in shining armor” for households, cutting interest rates in tough times to stimulate the economy.
Weak GDP data and rising unemployment for the March quarter suggest Australia is already in a downturn.
But Mr Bloxham said mortgage holders were unlikely to receive any rate cuts until at least 2027, although he predicted the Reserve Bank would not raise rates further this cycle.
He said the board should learn from 2025, when it cut interest rates three times while inflation was still falling, and not turn its back on the inflation dragon until it is sufficiently tamed.
“We expect the board to decide that it is time to pause but that the fight may not be over yet,” Mr. Bloxham wrote in a research note.
“The knight will need to remain armed and alert. No turning back with good news of a dragon slain yet, and no reduction in cash rates.”
Financial markets agreed with the vast majority of economists that the Central Bank would keep the interest rate steady at 4.35 percent on Tuesday, but priced the odds of another rate hike in 2026 at about one in two.
IG market analyst Tony Sycamore said since the last meeting headline inflation was less worrying than feared, growth had weakened and the federal budget was putting further pressure on sentiment.
Given assurances that markets will remain steady, he said, attention will instead turn to the tone of the board’s accompanying statement and Chairman Michele Bullock’s news conference for any hint of the possibility of further tightening.
Even with the hold, borrowers with $1 million mortgages would pay about $450 more per month in interest than they did in February, before the Federal Reserve’s rate hike cycle began.
CreditorWatch chief economist Ivan Colhoun said businesses were also feeling the pressure as late payments were at a six-year high.
He said the Fair Work Commission’s “irresponsibly large” increase in minimum and paid wages since the last meeting would further increase cost pressure on employers and make it harder for the Central Bank to fight inflation.
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