The subtle clue from the RBA that could mean a rate pause as early as April

Economists have flagged there will be some relief from rate hikes this year. Here's what different experts say mortgage holders can expect, and when.

The Reserve Bank has been hiking interest rates aggressively to tackle inflation, which came in at a hotter-than-expected 7.8 per cent in the December quarter - its highest level since 1990. Source: AAP / STEVEN SAPHORE/AAPIMAGE

Australia's central bank on Tuesday lifted the official cash rate by another 25 basis points, taking it to 3.6 per cent.

The increase will heap more financial pain on mortgage holders already slugged by nine previous consecutive rate hikes.

But a subtle change in language from the Reserve Bank of Australia (RBA) in its latest statement has left some of Australia’s leading economists optimistic about a rate pause.

What did the RBA say it will do to rates this year?

In his previous statement in February, RBA governor Philip Lowe signalled in no uncertain terms further rate hikes would occur this year.

But in Tuesday’s March statement, that language shifted.

“The Board expects that further tightening of monetary policy will be needed.”

Inflation has soared in the past two years. Credit: SBS News

That change — from “further increases in rates” to “further tightening of monetary policy” — has boosted expectations that the slowdown in the economy and other fiscal measures have worked and there’s a rate pause on the way.

AMP Capital chief economist Shane Oliver said the latest statement was “radically different” from February’s and the RBA board had “watered down” its interest rate guidance.

“They're saying further tightening of monetary policy will be needed, which could just be one increase,” he told SBS News.

“Last time they were implying two or more tightening screws. This time they're saying potentially just one.”

What do economists predict will happen with interest rates?

Mr Oliver said the RBA had opened the door to a rate pause, which he says could happen sooner than previously expected.

“The fact that they have actually said when, in assessing when further interest rate increases will be needed, suggests that they're open to the possibility of pausing.

“Whereas the previous statement didn't have that window for a pause in there.

“It's quite a big shift.”

How fixed and variable rates compare over time. Credit: SBS News

Economist Chris Richardson is more cautious on the RBA’s change in language, which he said was “deliberately a little vague”.

“This is, if you like, a change in emphasis from the Reserve, indicating the potential for a pause, not necessarily saying the pause is upon us.”

When will interest rates go down or pause?

Mr Oliver is predicting a pause in rate hikes as soon as April 2023.

He says the RBA will be considering the economic data starting with jobs figures next week.

“Our base case is a pause in April,” he said.

“And I think the longer they (RBA) pause, the more they won't be raising interest rates again, because rates will start to slow the economy down.”

How capital city house prices have changed in value over time. Credit: SBS News

Mr Oliver said it all depends on the economic data and the RBA could “wax and wane” if the figures moved around, but a rate cut was in sight later this year.

“I think the evidence is becoming overwhelming that RBA rate hikes combined with cost of living pressures are slowing the economy down, and that will, along with improved supply, will lead to much lower inflation through this year, enabling the Reserve Bank to pause or go on hold and then start cutting rates either later this year or early next year.”

How the price of units have changed in capital cities. Credit: SBS News

Mr Richardson said “a whole range of indicators” - from housing activity to consumer sentiment - were pointing to a slowdown and potential sign of inflation turning.

He predicts at least one more rate rise next month, after which relief could be in potential sight.

“The Reserve clearly thinks it's going to have to raise interest rates at least one more time,” Mr Richardson told SBS News.

“At the moment, you would say that a further increase next month is really quite likely, it's beyond then I would say that the potential for a pause kicks in.”

He said it was still a wait-and-see until forthcoming data was released.

“A month ago, the Reserve clearly thought it had some way to go. This time, it clearly thinks it's closer to the peak, but that the peak isn't quite here yet.”