New date, no surprises: RBA holds the cash rate

Off the back of slowing inflation and reduced household spending, the RBA has decided to hold the cash rate target steady.

There are no surprises this month as the Reserve Bank of Australia (RBA) announces it's holding the cash rate target at 4.35%.

This is the third hold in a row, since the RBA last increased the cash rate in November. Holding the cash rate should mean that your variable interest rate will not change (I'm saying should because that's typically how it goes, but sometimes the banks do what the banks do).

Today's announcement is a shift away from the 'first Tuesday of the month' meetings we're used to. It comes after a government review last year which recommended the RBA meet fewer times in a year (from 11 meetings to 8).

Previously, the RBA met every month apart from January. Rather than just cutting out another 3 months from the calendar, it also shifted the dates around.

So, today marks the first announcement on one of these new dates. After today there won't be a meeting until May 7.

What impacted this month's decision to hold?

The decision to hold this month was not a shock. 100% of the economists that Finder surveys each month predicted the rate would hold.

The consumer price index is currently at 4.10%, heading back down towards the RBA's target range of between 2-3%. Bringing down that figure was the goal of the rising interest rates, so this is good news and means there's no need for the RBA to increase rates.

Household spending figures also show that Australians are spending less. Also good news, because reduced spending means inflation will continue to slow (prices rise with demand. Less demand, fewer price rises).

One economist in our panel, QIC's Matthew Peter, was confident enough to say that "rate hikes are now off the table", but other factors will hold off a cut for a while.

"Elevated migration, coming tax cuts and ongoing wage increases will stop the RBA from easing back on monetary policy until later this year," he said.

Why the new meeting schedule?

There's been a lot of talk over the last couple of years about an 'economic lag'. That's to say, the RBA makes a decision and it takes a while for that decision to actually be felt in the economy.

That's why there was some criticism when the RBA increased the cash rate for several months in a row. Many felt there needed to be more time between increases to see what the impact of them was.

But do the new meeting cycles give enough time for that?

In short, not really.

Sure, with more time for the economy to adjust the RBA may have more information to go on. With inflation figures now coming out every month rather than just every quarter, being able to take a more specific look at what inflation is doing before making a decision could be helpful.

But really it's about having extra time for decision-making.

In the government review recommendations, it said the shift to 8 meetings a year would "allow for more in-depth discussions".

With more time for discussion, the board should in theory have more time to reflect and request follow-up analysis. The board should also have more opportunities to speak to a wider range of RBA staff.

The biggest way it affects borrowers is the fewer chances for your variable rate to change. Great news if interest rates went through another year like 2022, but it also lessens the number of opportunities for rates to fall in a year.