The Reserve Bank of Australia (RBA) has halted its monetary policy tightening cycle for the second time in 15 months, leaving the cash rate on hold at 4.1 per cent.

The rate pause follows a surprise print for the monthly consumer price index (CPI), which reported headline inflation of 5.6 per cent in the 12 months to March 2023, well below market expectations of 6.1 per cent.

Despite the inflation surprise, market expectations were mixed ahead of the board meeting, with a Bloomberg survey suggesting the odds between a hike and hold verdict were balanced.

But a number of senior economists, including representatives from three of the big four banks (ANZ, NAB, and Westpac), had projected a hike, with the Commonwealth Bank alone in correctly forecasting a hold.

Westpac economist Bill Evans said resilience in the labour market would force the RBA’s hand, with the unemployment rate falling to a near-record-low of 3.6 per cent.

“A second pause, to gather further information, seems unnecessary and only risks the need for the cycle to extend even further into 2023 when the prospects for damage to the economy increase substantially,” he said.

Reflecting on the RBA’s latest rate hike, Anneke Thompson, chief economist at CreditorWatch, said rates should be close to their peak.

“We are now nearing, if not at, the point in the monetary policy tightening cycle where further rises to the cash rate will have limited further effect,” she said.

IFA