Australia Interest Rate Likely to Stay at 3.85% in March, Not Rise to 4.1%

Investors think there's only a 1 in 3 chance the interest rate will jump to 4.1% next week, preferring the bank to wait until May.
By Newsroom | Finance, Australia |

The men who move the interest rates will sit in a room this coming Monday and Tuesday. They are looking at a 0.25 percentage point lift. If they move their pens, the cost of borrowing money hits 4.1 per cent. This choice sits on the edge of two bad outcomes: the rising cost of staying alive and the threat of people losing their shifts.

“Higher prices don’t help that debate,” says Andrew Hauser. He points to oil. If the black liquid gets too expensive, the whole machine slows down, and the jobless queue grows long.

The central bank is trapped between a surge in fuel costs and the risk of breaking the economy’s back.

The Odds of the Squeeze

While the threat of a hike is heavy, the people who bet on money—the investors—don't think it's a sure thing yet. They see a gap between what is said and what will happen.

  • Most people trading money think the bank will wait until May.

  • There is only a one-in-three chance the rate jumps next week.

  • The logic is messy: expensive oil makes prices go up (inflation), but it also makes people spend less, which could do the bank's job for them by cooling the market.

Potential ActionRate TargetMarket Sentiment
Current Hold3.85%Majority Expectation
Proposed Hike4.1%33% Probability
May ReviewTBDPrimary Target

The Mechanics of Joblessness

The talk from the Reserve Bank has turned to a strange trade-off. Hauser noted that while oil spikes make things more expensive, they also act as a weight on "economic activity." This is a quiet way of saying the money engine might stutter. When the engine stutters, companies stop hiring or start firing.

Read More: Scotiabank Lowers MAA Stock Price Target Due to Slow Near-Term Growth

The irony remains: The bank might raise rates to stop prices from rising, even if the high price of oil is already doing the damage by making everyone too poor to buy anything else.

Background on the Grind

The RBA's monetary policy committee operates on a cycle of watching and reacting. For months, the target has been to push the inflation monster back into its box.

  • This upcoming meeting is the first major test of the new year's data.

  • The 4.1 per cent figure is a psychological and structural ceiling that hasn't been touched in the current streak of tightening.

  • Oil remains the "wild card" that the bank cannot control, yet they must react to the shadows it casts on the ledger.

Frequently Asked Questions

Q: Will the Reserve Bank raise interest rates to 4.1% next week?
Most investors believe the Reserve Bank will not raise interest rates to 4.1% next week. They think the bank will wait until May to make a decision.
Q: Why might the Reserve Bank not raise interest rates?
High oil prices are making things more expensive, but they are also making people spend less money. This might slow down the economy enough that the bank doesn't need to raise rates.
Q: What is the current interest rate in Australia?
The current interest rate in Australia is 3.85%. The Reserve Bank is considering a small increase of 0.25 percentage points.
Q: What did Andrew Hauser say about oil prices?
Andrew Hauser noted that rising oil prices can slow down the economy and potentially lead to more people losing their jobs. This makes the decision about interest rates more difficult.
Q: When do investors expect the next interest rate decision?
Investors are mostly expecting the Reserve Bank to review and potentially change the interest rate in May, rather than in the upcoming meeting.