RBA interest rates in April: what will happen?
When the Reserve Bank board meets tomorrow for its April meeting, interest rates are largely expected to stay on hold at 1.50% and the housing market is likely to be a major deciding factor.
The ASX is currently indicating a 98% chance that there will be no change this month - and only a 2% chance of a cut to 1.25%. Low wages and inflation are both factors that may influence the Reserve Bank board’s decision, but one of the main considerations is likely to be the state of the housing market.
Capital cities like Sydney and Melbourne are still experiencing surging prices, and housing affordability has been a hot topic lately. As Mozo Data Manager Peter Marshall said earlier this year, it’s unlikely the RBA will want to drive prices even higher by lowering rates again.
Instead, there’s a strong possibility the Reserve Bank will settle in for a waiting game, and hold off on any changes until at least the end of 2017, if not 2018.
At that point, many experts are also banking on a rate increase, in no small part because of expectations that the US Fed will continue to raise rates throughout the year.
An RBA rate hike would give Aussie banks free reign to increase home loan rates - not that they’ve been waiting on the RBA to do that. In March, all four big banks, plus 28 smaller lenders raised home loan interest rates independent of the Reserve Bank.
A rate increase may help in slowing property demand - particularly among investors, who generally see the steepest rate hikes - and therefore price growth.
But with other factors like low inflation, stagnant wages, high household debt and the ongoing problem of underemployment to consider, the RBA will likely wait and see what effect other changes, like out-of-cycle bank hikes and APRA’s recent lending restrictions will have on the market.
The APRA restrictions were designed to limit investment and interest-only lending. So if these measures succeed in slowing property price growth, the Reserve Bank may hold off on lifting the official cash rate for some time. It may even open the door for further easing from the RBA, which is still chasing its 2-3% inflation goal.
The general consensus is still that rates will remain on hold at 1.50% for April, but be sure to check our Reserve Bank announcement page tomorrow to find out what Governor Philip Lowe has to say.