momentum, confidence among consumers and businesses remains soft, and the job market is showing signs of easing, which all point to higher rates doing their job. But inflation is still running too hot, and the bank warns that price pressures can hang around if higher costs keep feeding into wages and everyday services. That’s why the next few inflation updates matter so much: a downside surprise could keep the RBA comfortably on hold, while an upside “overshoot” in the second quarter could reopen the door to an August hike. Bank of America Securities also notes markets are still factoring in a small amount of tightening by year-end, which can influence bank pricing even before the central bank actually changes rates.
Why should I care?
For you: A 4.35% cash rate still keeps variable-rate mortgage repayments doing the heavy lifting.
When lots of borrowers are on variable-rate mortgages, the RBA doesn’t need to hike again for household budgets to stay under pressure: simply holding at 4.35% keeps today’s higher repayments in place for longer. And because a mortgage payment is a fixed bill that comes out before most other spending, “higher for longer” usually shows up first in discretionary categories like eating out, travel, and big-ticket shopping. Add in Bank of America Securities’ view that an inflation overshoot could still bring an August move, and it’s a reminder that “on hold” isn’t the same as “relief” if inflation data starts pushing lenders to price in renewed rate risk.