Major clue over RBA’s next rate move

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Aussie homeowners are being battered by increasingly brutal interest rate rises – but there could be some relief on the horizon.

According to Westpac’s latest survey released on Tuesday, consumer sentiment remained unchanged at 78.5 in March – meaning that crucial number is holding at “near-historical lows”.

NABs Business Confidence survey was also released today, falling below the long-run average and sitting at its lowest level since November 2022.

“This marks the second consecutive month of extremely weak consumer sentiment. Index reads below 80 are rare, back-to-back reads even rarer. Indeed, both the Covid shock and the Global Financial Crisis saw only one month of sentiment at these levels,” Westpac chief economist Bill Evans said.

“Runs of sub-80 reads have only been seen during the late 1980s/early 1990s recession and in the ‘banana republic’ period of concern in 1986, when the Australian dollar was in freefall after the federal government lost its triple-A rating.”

Reserve Bank of Australia governor Philip Lowe announced yet another rate rise to 3.6 per cent this month. Picture: Brendon Thorne/BloombergReserve Bank of Australia governor Philip Lowe announced yet another rate rise to 3.6 per cent this month. Picture: Brendon Thorne/Bloomberg

The major bank’s survey found 74 per cent of those polled were bracing for more rate hikes this year, following March’s rate rise to 3.6 per cent.

And the survey also uncovered an “emerging area of particular concern” – the outlook for sales of big household items – after the ‘time to buy a major household item’ subindex fell 4 per cent to 74.9 in March, following a 10 per cent fall in February.

“This is the lowest read on this component in the history of the survey going back to 1974 – weaker than the poorest reads during the recessions of the mid 1970s, the early 1980s and the early 1990s,” Mr Evans said.

However, there could be a silver lining for mortgage holders already doing it tough, with Westpac cautiously indicating there could finally be a rate hike pause in April after 10 consecutive rises.

Mr Evans noted that Reserve Bank of Australia (RBA) governor Philip Lowe gave a “clear signal” in February that he expected to raise rates at least twice more in the near term – but that he had since given a major hint that an April pause might be on the cards.

“Following the weaker-than-expected prints for wages growth and economic activity in the December quarter, and a soft inflation report for January, the governor has now opened the door to a potential pause in April,” Mr Evans said.

Mortgage holders are feeling the pinch after months of aggressive rate rises. Picture: William West/AFPMortgage holders are feeling the pinch after months of aggressive rate rises. Picture: William West/AFP

“Whether that pause eventuates will be determined by upcoming data on employment, inflation, spending and confidence.”

But regardless of whether there is a pause next month, Westpac has said it “will maintain our forecast of a 0.25 percentage point increase in May, when the bank will have reviewed its forecasts particularly in the light of the March quarter inflation report”.

It comes amid increasing speculation that the shock collapse of several banks in the US – including Silicon Valley Bank (SVB) – could also cause the RBA to hit the brakes.

Speaking to recently, Betashares chief economist David Bassanese said the chaos in the US could end up having at least a temporary upside for Aussie homeowners.

“Depending on the fallout in the next few days, moreover, the mayhem will likely be enough to encourage the RBA to pause at the April meeting also,” he predicted.

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Economists are also now hedging their bets that the RBA will be forced to pause the official cash rate increases – which has gone from a record low of 0.1 per cent to 3.6 per cent since May last year.

For now, three of the big four banks – Westpac, ANZ and NAB – expect Australia to reach a peak cash rate of 4.10 per cent, with the Commonwealth Bank calling a peak of 3.85 per cent.

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