By Stephen Johnson, Business Reporter for Daily Mail Australia
23:58 21 Mar 2023, updated 00:23 22 Mar 2023
- The futures market is now anticipating rate cuts in 2023
- The Reserve Bank indicated a pause in interest rate hikes in April
The Reserve Bank of Australia is now expected to start cutting rates in mid-2023 after announcing it would pause a planned rate hike in April.
Minutes from an RBA board meeting on Tuesday say the central bank will “reconsider the case for a pause” at a meeting next month.
The interbank futures market, which tracks interest rate movements, on Tuesday forecast a rate cut in July that would bring the policy rate back to 3.35 percent.
A week ago, the Australian Securities Exchange’s 30-day cash rate futures expected the RBA to keep rates on hold for the remainder of 2023 at an 11-year high of 3.6 percent.
The collapse of America’s Silicon Valley Bank, Signature Bank and Silvergate Bank and the near-death of Credit Suisse in Switzerland have dramatically altered interest rate forecasts, despite inflation at 7.8 percent, a 32-year high.
The Reserve Bank of Australia is now expected to start cutting rates in mid-2023 after hinting that it is likely to pause a planned rate hike in April. The interbank futures market, which tracks interest rate movements, on Tuesday forecast a rate cut in July that would bring the policy rate back to 3.35 percent.
Minutes from the Reserve Bank’s March meeting released on Tuesday indicated it was considering a pause, noting unforeseen developments that could threaten global financial stability.
“They agreed that forthcoming releases on employment, inflation, retail trade and business surveys would provide important additional information, as well as developments in the global economy,” it said.
“Members agreed to consider the case of a pause at the following meeting, recognizing that a pause would allow additional time to reassess the outlook for the economy.”
At the RBA meeting on March 7, it was decided to raise interest rates by another 0.25 percent, marking the 10th straight monthly increase.
The Reserve Bank’s March meeting minutes released on Tuesday suggested it had considered a pause, noting unforeseen developments that could threaten global financial stability (pictured are security guards outside Silicon Valley Bank’s Santa Clara headquarters in California).
But that came six days before the US Federal Deposit Insurance Corporation announced it would guarantee SVB deposits shortly before it was appointed receiver.
Westpac chief economist Bill Evans said the RBA was concerned about surprises ahead of the recent US development.
“The protocol emphasizes a high level of uncertainty; fail to take into account global banking disruptions; and point to a break in April,” he said.
ANZ still expects a 0.25 percentage point rate hike in April, which would take the policy rate to 3.85 percent, but senior economist Felicity Emmett said uncertainty in financial markets could halt a rate hike.
A week ago, the Australian Securities Exchange’s 30-day cash rate futures expected the RBA to keep rates on hold for the remainder of 2023 at an 11-year high of 3.6 percent
“Our base case remains a further 25 basis point hike at the April meeting, although that assumes financial market volatility abates,” she said.
None of the major Australian banks expect a rate cut in 2023.
Westpac and the Commonwealth Bank expect interest rates to peak at 3.85 percent in April or May this year.
But Westpac expects seven rate cuts in 2024 and 2025 that would bring it back to 2.35 percent.
ANZ and NAB expect two more rate hikes in April and May, which would take the key interest rate to 4.1 percent.
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