People walk out of the Reserve Bank building in Sydney's CBD.
No change in interest rates is expected when the Reserve Bank meets this week. Image by AP PHOTO
  • politics

Cash rate likely on hold in ‘straightforward’ call

Poppy Johnston March 17, 2024

Interest rates have been on pause at 4.35 per cent for the past two Reserve Bank meetings and are likely to stay unchanged for a third when the board meets this week.

Due to meet over two days, the central bank’s board members will assess the state of the Australian economy and where it is headed before coming to a decision on the cash rate on Tuesday afternoon.

For the second time under the new monetary policy setting regime of fewer meetings and longer deliberations, RBA governor Michele Bullock will take questions from the press to explain the thinking behind the call.

The central bank started lifting interest rates from record low levels of 0.1 per cent in May 2022 in response to fast-rising inflation. 

Thirteen rate hikes later, the economy is slowing and inflation is moderating as a result, but consumer prices are still growing faster than the two-three per cent target range.

With the latest data showing sluggish economic growth and the labour market softening, most forecasters believe the next move in interest rates will be down.

RBA governor Michele Bullock.
 RBA governor Michele Bullock will take media questions to explain the next interest rate call. Image by Lukas Coch/AAP PHOTOS 

HSBC chief economist in Australia, Paul Bloxham, is not expecting any talk of easing just yet.

“We expect the RBA to remain on hold in March and the board discussion to be about whether another hike is needed, rather than about any prospect of rate cuts,” he said.

Despite growth slowing and the jobs market loosening, he said this was happening gradually. 

“A key challenge is that, although growth in demand has slowed, productivity has been weak and the supply-side of the economy is still constrained,” he said.

Commonwealth Bank head of Australian economics Gareth Aird said RBA would leave the cash rate unchanged at the upcoming meeting in what should be a “straightforward decision”. 

“Overall we expect a very similar message from the board and governor next week on how the economy is tracking to the communication we got in February,” Mr Aird said.

Australians will also get an update on the stability of the financial system when the RBA releases its bi-annual review of the subject on Friday.

The state of the jobs market will also be on show, with the Australian Bureau of Statistics due to drop its February labour force data on Thursday.

In January, the jobless rate moved above four per cent for the first time in two years – reaching 4.1 per cent in January, up from 3.9 per cent in December.

Roughly 500 jobs were added to the economy, falling well short of the 25,000 pencilled in by forecasters.

A weaker labour market and a rising unemployment rate is an expected consequence of a slowing economy and higher interest rates.

US stocks fell on Friday, led by technology-related megacaps that have propelled this year’s rally, while investors weighed the interest rate outlook ahead of next week’s Federal Reserve meeting.

The Dow Jones Industrial Average fell 190.89 points, or 0.49 per cent, to 38,714.77. The S&P 500 lost 33.39 points, or 0.65 per cent, at 5,117.09 and the Nasdaq Composite dropped 155.36 points, or 0.96 per cent, to 15,973.17.

Australian futures fell 13 points to 7659.

In Australia the benchmark S&P/ASX200 index had been down by as much as 1.5 per cent before lunchtime on Friday but turned things around in the afternoon to close down just 43.3 points, or 0.56 per cent, at 7,670.3.

The broader All Ordinaries dropped 47.8 points, or 0.6 per cent, to 7,926.2.

For the week the ASX200 lost 2.25 per cent, its worst week since a 2.89 per cent drop from September 18-22, 2023.