Punters may be relieved to learn the central bank didn’t appear to consider hiking the cash rate last month, despite RBA Governor Michele Bullock proclaiming “the war [on inflation] isn’t yet won”.

It’s the first time in a long time a hike wasn't explicitly on the table in the RBA boardroom. 

The minutes of last month’s monetary policy meeting were published on Tuesday, providing a window into the RBA’s decision making process. 

Unsurprisingly, the RBA board discussed inflation over its two day meeting, spanning 18 and 19 March.

The RBA board considered the data flow to be "consistent with continuing, but diminishing, excess demand and strong domestic cost pressures".

It noted that monthly inflation, excluding volatile items, was approximately 4% on an annual basis in January, and had dropped below 3% on a three-month-ended annualised basis.

Both of those figures were apparently good news for the central bank, which aims to keep core inflation in the realms of 2% to 3% on an annual basis. 

On a less positive note, the minutes reveal the RBA board expects inflation to “rebound” in coming quarters, potentially dampening hopes of near-term interest rate cuts.

“A rebound was anticipated in coming quarters as recent declines in fuel prices and the pace of decline of some household goods prices were not expected to persist and electricity rebates were legislated to expire,” the minutes read.

The cash rate is the only weapon the central bank has against inflation, which took off amid pandemic-era stimulus and supply chain challenges. 

The rate influences many things, one being interest rates charged to borrowers.

The RBA board upped the rate 13 times between May 2022 and November 2023, taking it from a record low to a 12-year high.

While the data flow was said to be consistent with falling inflation, the overseas experience – wherein the final push to central banks’ targets has proven difficult – could occur in Australia too. 

“How inflation has moved in Australia has been very similar to how inflation has moved … in other countries, which are about six months ahead of us,” Bank of Queensland chief economist Peter Munckton told the Savings Tip Jar podcast in the wake of the RBA’s latest decision.

He pointed out that getting the critical read from around 3%-to-3.5% to the high-2% mark has proved challenging. 

Households doing fine amid high interest rates 

Despite apparent risks of an inflationary rebound, the RBA board noted Australian households are soldiering on in the current climate.

“Most Australian households remained able to service their debts and meet essential expenses, and this was expected to remain true even if inflation were to prove more persistent than anticipated,” the RBA minutes read. 

That was largely said to be due to low unemployment and still-notable savings buffers. 

The household savings ratio lifted to 3.2% in the December quarter, while the unemployment rate slid to 3.7% in February. 

Meanwhile, the central bank’s minutes reiterated the board’s suggestion that wages growth has likely peaked. 

Though, it noted that overall wages growth isn’t expected to drop quickly. 

While wages growth remains complementary to the RBA’s inflation target, the board noted that’s only the case if productivity returns to long-running averages. 

Will rates be cut at the next RBA meeting?

The minutes reiterate what the RBA board said last month: It’s not ruling anything in or out. 

That statement might leave suffering borrowers on tenterhooks wondering when relief might come. 

The board will next meet in early May, as per its new schedule. 

According to the ASX RBA Rate Tracker, one in 10 traders expected that meeting will see the cash rate cut to 4.10% at the end of last week.

Economists at CommBank and Westpac expect the first cut will be in September and those at ANZ and NAB predict it to come in November. 

Image courtesy of the Reserve Bank Australia