RBA ends (for now) its rate hiking cycle

At its board meeting in March, the RBA softened its hawkish tone and opened the door to a pause. The Minutes from the March Board meeting noted that it would be appropriate for the RBA to pause its rate hiking cycle "at some point" to assess the effects of prior rate hikes.

As part of its considerations, it said it would closely watch incoming employment, inflation, business surveys and retail sales data.

Apart from the release of employment data for February, the remainder of the data has been softer than the consensus.

Last week’s release of softer-than-expected retail sales and a lower-than-expected rise in the monthly CPI indicator on top of recent banking stress, combined to see the RBA pause its rate hiking cycle to assess the impact of a total of 350bp of rate hikes since last May.

“The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty.”

While a pause will no doubt see mortgage holders breathe a sigh of relief, the RBA reiterated that its main priority is to return inflation to target and left the door open to future rate hikes.

The RBA noted that the most critical factors behind the next move in rates would be “developments in the global economy, trends in household spending and the outlook for inflation and the labour market”.

As such, the March Labour Force report to be released on April 13th and the March quarter inflation data scheduled for release on April 26th will be closely scrutinised before the RBA’s Board Meeting in May. The market will also be alert to any evidence that bank lending is tightening further.

Today’s decision was in line with our view for the RBA to keep rates on hold at 3.60% and further evidence of the rates market predictive accuracy being fully priced for the RBA to keep rates on hold today. The rates market continues to call for a full RBA rate cut by December of this year.

How did the ASX 200 react?

Heading into the announcement, the ASX 200 traded slightly lower on the day at 7217. Post the “pause” announcement it rallied 20 points before settling up around 10 points at 7232,

Providing the ASX 200 continues to hold above support at 6900, the pullback from the February 7567 high is viewed as a countertrend (an "ABC" Elliott Wave correction), and we expect the ASX 200 to extend its recent rally towards the resistance 7350/70 area (March highs).

ASX 200 daily chart

1. TradingView: the figures stated are as of April 4th, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.