Split emerges ahead of interest rate meeting

The central bank board will decide whether it will lift the cash rate, which guides interest rates set by lenders, for the 11th consecutive month or take a breather in the high-stakes meeting.

While the RBA has previously indicated a pause could be on the way, economists are split on whether inflation and retail data have softened enough to take the sting out of the economy.

Inflation rose to 6.8 per cent in the 12 months to February, falling from the 7.4 per cent annual growth in January and down from the peak of 8.4 per cent in December.

It is still well above the bank’s target range of 2 to 3 per cent.

The economic teams at both the ANZ and NAB forecast the central bank will raise the cash rate to an 11-year high of 3.85 per cent.

The RBA shadow board at the Australian National University is also in favour of another hike.

“In particular, it attaches a 66 per cent probability that the overnight rate should be higher than the current level of 3.60 per cent,” the team said.

“However, it attaches a 34 per cent probability that keeping the overnight rate on hold this round is the appropriate policy, suggesting growing caution about further tightening.”

The shadow board sounded the alarm on the impact of retreating house prices paired with the expiry of more than 800,000 fixed interest rate mortgages later this year.

“Early this year, nearly one-quarter of mortgage holders were estimated to be at risk of mortgage stress, which occurs when homeowners put more than 30 per cent of pre-tax income to mortgage payments,” it said.

“Currently, high employment rates are preventing most households from defaulting, but even a modest uptick in the unemployment rate could change the picture significantly.”

Financial markets were pricing a pause as a 100 per cent likelihood on Monday afternoon, as were the economic teams at Westpac and the Commonwealth Bank.