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How lawyers should react if the cash rate is paused

Speculation is ramping up among experts that the Reserve Bank will not institute an 11th cash rate rise this week. If that does happen, here’s what that means for legal professionals with a mortgage, or with an eye on the property market.

user iconAnnie Kane, Charbel Kadib, Josh Needs and Jerome Doraisamy 03 April 2023 Big Law
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Predicting this week’s cash rate call

On Wednesday (29 March), the Australian Bureau of Statistics released the monthly consumer price index data for February, revealing that annualised inflation fell for the second consecutive month to 6.8 per cent in February.

The drop was below market expectations, with many economists having expected CPI to remain above 7 per cent, and represented a 0.6 per cent decline from the previous month.


As reported last week by Mortgage Business, the monthly CPI result is expected to influence the RBA’s next monetary policy board decision, along with the latest retail sales figures (which increased by a marginal 0.2 per cent, compared to January’s 1.8 per cent rise), employment figures (which showed a seasonally adjusted unemployment rate of 3.5 per cent, down from 3.7 per cent in January), and other business indicators.

Diana Mousina, senior economist at AMP Australia, explained: “The monthly February consumer price data was the final piece of the economic data puzzle to be released before the RBA’s board meeting next Tuesday.

“Given the weakening in domestic economic momentum, the slowing in inflation and the risks in the global banking sector, we see the RBA keeping the cash rate on hold next week and keeping the cash rate on hold before the change of rate cuts late this year.” 

Commonwealth Bank also revised its cash rate outlook, noting the following in its latest market update, as reported by Investor Daily“In what we believe is a very close call, we now expect the RBA to leave the cash rate on hold at 3.6 per cent at the April board meeting.”

“We ascribe a 55 per cent chance to no change, and a 45 per cent probability to a 25 bp increase to 3.85 per cent — we consider the risk of any other move immaterial,” CBA outlined.

Not everyone is expecting a pause in the cash rate, however, as Mortgage Business noted.

ANZ economists have continued to state that the rate call next week will be a hike, outlining that while the monthly CPI figure fell, inflation momentum remains strong and is not slowing as much as the fall in annual inflation would suggest.

“While the RBA has signalled its intention to pause at some point in the coming months, we continue to think that the data is not yet consistent with a pause ... while encouraging, the decline in annual inflation so far doesn’t guarantee that it falls back to target under current policy settings.

“Along with previous data releases, this makes us comfortable with our call that the RBA will raise the cash rate 25 bps at its April meeting,” ANZ said last week.

This said, as Accountants Daily detailed, CPA Australia senior manager of business and investment policy Gavan Ord said that a pause to the rate rises off the back of the improved inflation figures would be a welcome relief for many.

“We know businesses would welcome a pause in rate hikes following 10 consecutive increases,” said Mr Ord.

“Regardless of whether the Reserve Bank increases rates or not, businesses are still facing a tough economic environment. Inflation is still high, and the previous interest rate rises will continue to have an effect on confidence and spending.”

“In this unpredictable environment, even if rates don’t increase, businesses should not assume the rate hikes are over.”

What this means for lawyers

Speaking to Lawyers Weekly ahead of the monthly cash rate call, Legal Home Loans general manager Aylin Unsal said that borrowers have been experiencing quite the shock on their home loans since May 2022, when the RBA began lifting the cash rate from its historic pandemic low of 0.10 per cent.

“If you’re a borrower who has been on a variable interest rate since then, on a loan size of $500,000, for instance, your monthly repayment has gone up by $847. That is a sizable hit on a household budget,” she detailed.

“Now, at 3.6 per cent after 10 consecutive rises, the RBA has indicated they are considering pausing for now.”

When asked what can be made of this, Ms Unsal said that if a pause does occur, it is because inflation is at the target level or lower.

“Given the February inflation rate released by the ABS is below expectations at 6.8 per cent, it is very possible we will see a cash rate pause coming up in April or May,” she said.

“From a lending perspective, a pause would be good news.”

“It would mean that banks will likely hold interest rates for now, offering greater stability to borrowers on variable rates and to shoppers that are looking to purchase a home.”

If lawyers fall into either of these camps, Ms Unsal continued, there is, unfortunately, no way to predict the future of the cash rate.

“As we have learnt in recent years, even the RBA itself can be mistaken in its predictions — and therefore, what the best decision is when it comes to your mortgage. While it does appear that we are coming towards the peak of the current rises, it is impossible to know for certain,” she advised.

“It is always best to make these decisions based on your current circumstances with the help of a trusted expert, such as a financial advisor or lending specialist.”