What to expect from the RBA meeting in April 2023

Forecasting the next move by the Reserve Bank of Australia (RBA) board may not be as easy as it used to be. With a wide range of factors in play, economists from Australia’s big banks have not reached consensus on whether the RBA will hike the cash rate in April 2023, whether a rate pause may be on the cards, or when rates may be cut.

Recently released figures from the Australian Bureau of Statistics (ABS) show that annual inflation shrunk to 6.8% in February 2023, down from 7.4% in January 2023 and 8.4% in December 2022. This example of disinflation could potentially indicate that the last year of hikes from the RBA are having their intended effect. That said, inflation is still well above the RBA’s preferred target of between 2 and 3 per cent.

Additionally, there are many other economic factors in play that could affect the RBA’s decision. These range from retail spending, to banking instability, the cost of living, housing affordability (including the rental crisis), household savings, wages growth and employment. 

RBA

Speaking at the Australian Financial Review Business Summit, RBA governor, Dr Phillip Lowe, said that “we are closer to a pause, and it’s a matter of logic really.”

“As you increase interest rates higher you get closer to the point where it is appropriate to stop for a while and just assess the flow of data. We’ve done a lot in a short period of time. And at some point it’s going to be appropriate to sit still and assess the collective effects of that.”

Dr Lowe added that before their April 2023 meeting, the RBA board will have data available on employment, monthly inflation, retail spending and business surveys, all of which will inform their next decision. He also said that if inflation could come back to 3 per cent by mid-2025, and employment was kept under 5 per cent, that would be a “fantastic outcome”.

Dr Lowe also encouraged Australians to shop around for higher deposit rates, saying that you can find savings interest rates as high as 4 per cent.

ANZ

ANZ is still forecasting that Australia’s cash rate will peak its current cycle at 4.1 per cent, following 25-point rate hikes at the April and May 2023 RBA board meetings.

However, if data to be released prior to these meetings is weaker than expected, this could potentially slow down the rate hikes with a near-term pause.

“Ultimately we see the question as not one of ‘where’ the RBA gets to (we still favour 4.1% as the terminal rate), but ‘when’ it gets there.”

ANZ has also said that it does not expect the RBA to start easing until a 25 point cut in November 2024.

CBA

The Commonwealth Bank recently revised its forecast, which was previously for a 25-point hike in April, to predict that a pause is more likely to occur instead. However, a hike is not completely off the table for April, and even if there is a pause this month, a 25-point hike to a peak of 3.85% could follow in May 2023.

“The actions of many other central banks globally over the past two weeks lend weight to the RBA continuing to tighten policy despite some concerns within pockets of the global banking system(outside of Australia). But the domestic economy is now showing sufficient signs of slowing and we expect the RBA Board will judge that a pause in the tightening cycle is the appropriate move in April."

CommBank also noted that only around 45% of the RBA's past cash rate increases had been passed through to scheduled mortgage repayments at the end of 2022, so there is still plenty of tightening to come for the Australian household sector.

NAB

A new update to NAB's monetary policy forecast indicates that there should be just one more 25-point rate hike in April 2023 before the RBA chooses to pause its hiking cycle at a peak of 3.85%, though NAB also described the April meetign as a "line-ball decision. Previously, NAB was predicting hikes in April and May 2023, which would bring the cash rate to a peak of 4.10%. 

“The key question for the RBA Board is whether the current level of interest rates is now sufficiently high to ensure inflation sustainably returns to target in a reasonable time frame. In part, this depends on wage pressures remaining contained and expectations for inflation staying anchored. Based on the RBA’s statements and forecasts, a peak cash rate of 3.6% is unlikely to be seen as sufficiently restrictive by the Board, necessitating one more increase before a pause to assess how the effects of prior monetary policy tightening flow through.”

NAB added that if quarterly inflation figures were not as expected, a second May 2023 hike could still take place. 

NAB is also forecasting rate cuts in Q1 2024 that would bring the cash rate back down to 3.10%

Westpac

Westpac economists are predicting a pause in April 2023, with one more hike of 25 points to follow in May 2023, bringing the cash rate to a peak of 3.85 per cent.

According to Westpac, on top of the minutes of the March 2023 RBA meeting indicating that the Board would consider the pause option in April 2023, recent turbulence in global financial markets could also influence their decision. However, by the time the May 2023 meeting arrives, inflation data for the March 2023 quarter will be available to help the Board make its decision, with the next round of quarterly inflation data not due until August 2023.

“We expect that by August the case for pushing the cash rate even further into contractionary territory will be weak as the economic slowdown becomes more entrenched and as we start to see real progress in lowering inflation, especially if global credit issues continue to impact growth and markets.”

Westpac further forecasts that the RBA will start cutting interest rates in the March quarter of 2024, assuming inflation and related data meets the conditions.

To help you stay up to date with the latest updates to the national cash rate, as well as the changes to interest rates on home loans and savings accounts that follow, be sure to visit the RateCity RBA Rate Tracker hub.

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