RBA holds cash rate in March 2024: 'Inflation continues to moderate'

The Reserve Bank of Australia (RBA) again held the cash rate at 4.35% in March 2024, marking the fourth consecutive Monetary Policy Decision to leave the central bank’s rate unchanged.  

The last time the RBA held the cash rate this long (between Jul-Oct ‘23), they followed it up with a 25 basis-point hike in November 2023.

In a statement released by the RBA, the central bank says inflation is moderating in line with its forecast, but that the outlook for the economy "remains highly uncertain". 

While higher interest rates are working to create a more sustainable balance between supply and demand, it says, the Board expects inflation to return to the target range of 2 to 3% in 2025, with the midpoint of that band expected in 2026.

"There also remains a high level of uncertainty around the outlook for the Chinese economy and the implications of the conflicts in Ukraine and the Middle East.

Domestically, there are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slower growth in the economy at a time of excess demand, and while the labour market remains tight.

"The outlook for household consumption also remains uncertain."

While the RBA said last month it wouldn’t rule out further hikes if deemed necessary, it’s looking increasingly likely we’ll see cuts in the second half of this year.  

The latest Consumer Price Index (CPI) puts the annual inflation rate at 3.4% over the 12 months to January 2024. 

Before we see any cuts, the RBA wants to see the inflation rate fall within 2 to 3% (its ‘target band’). 

So, while we’re not there yet, 2024 is looking promising – especially for those with a home loan. 

Interest rates on home loans have ballooned since May 2022, potentially adding thousands of dollars to borrowers’ annual mortgage repayments.

A hold on the cash rate is still good news, however. 

You’re less likely to experience increases to your home loan interest rate, as lenders have no cost increases to saddle you with. 

It also means you can compare home loans with a degree of confidence that the refinance rates you find are less likely to rise this month. Just note that there are plenty of other reasons lenders choose to increase rates.

At the moment, variable home loans are charging 6.82% p.a. on average (owner-occupied, principal and interest, $400,000, <80% LVR), according to the Mozo database on 18 March 2024. 

This is slightly down from the start of this month when the average was 6.85% p.a. – not a huge difference, but encouraging to watch the average drop. 

Fixed-rate home loans are where the real reductions are happening right now, especially on 3-year terms.

The average 3-year fixed-rate home loan (owner-occupied, principal and interest, $400,000, <80% LVR) is currently 6.28% p.a. which is down from 6.34 at the start of the month. 

While it’s tempting to lock into a fixed rate now, it’s important to remember that if the cash rate drops, variable rates are likely to follow. So you mightn’t want to be stuck paying a higher interest rate than you have to for a number of years, watching variable rates get lower and lower. 

As always, if anything changes, we’ll be keeping an eye on rate movements and bringing you home loan news as we get it.