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The RBA has announced its cash rate decision following consecutive rate rises to start the year.
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RBA reveals landmark April interest rate decision
04 April 2023
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10 minute read
The Reserve Bank of Australia (RBA) has decided to pause the cash rate for the first time since April 2022, keeping the cash rate at 3.60 per cent.
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CreditorWatch’s chief economist Anneke Thompson said not raising the rate but instead pausing would give the RBA more time to evaluate the economy before making its next decision.
“Today’s decision will buy the RBA one more month to assess incoming data before inflicting any more pain on Australian borrowers,” said Ms Thompson.
“For the first time since the start of this monetary policy tightening cycle, the RBA was faced with a set of data that gave it no clear indication of which way to move.”
“On one hand businesses are still reporting very strong conditions and the labour market is still very tight. On the other hand, retail spending has flatlined since September (and must be falling on a per capita basis), and inflation is falling, though still high and well out of the target range.”
Ms Thompson said while international central banks were continuing to raise rates, the Australian economy functioned differently and simply following could prove costly.
“Overseas, European and US central banks continue to increase interest rates to fight inflation despite pressures in the banking sector in their jurisdictions,” she said.
“The Australian economy is particularly sensitive to interest rate rises, more so than the US or Europe, due to the volume of borrowers on or soon moving to variable interest rates.”
“This relatively unique factor is probably the main one allowing our central bank to pause, where others are still tightening.”
She said the monetary policy had reached restrictive territory which meant the economy would be unable to grow with the current cash rate.
“This is, of course, intentional, and now the question is how long the RBA needs to keep the cash rate in restrictive territory before they can release the brakes, so to speak, and allow less restrictive credit conditions,” said Ms Thompson.
Despite the pause in raising the rate, Ms Thompson said small businesses would still face a challenging few months ahead.
“For businesses, particularly small businesses that have less cash reserves and are more reliant on lines of credit for growth or smoother cash flow, the next six months or so are going to be very challenging,” she said.
“A strong labour market is insulating Australian households and businesses from a serious cash crisis.”
“However, once business sentiment turns, it is highly likely the labour market will soften with it.”
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