Albanese’s election plans hinge on rate cut for mortgage belt

Within the government, an interest rate cut on top of signs that inflation has eased while real wages grow at their fastest rate in more than a decade are considered pivotal to holding power at an election expected to be held by April 12.

Treasurer Jim Chalmers said the RBA’s decision would be based on economics and not politics.

“No matter what the Reserve Bank decides when they announce their decision tomorrow, the Albanese government’s focus won’t change,” he said. “Our focus is on getting inflation down, getting wages up, keeping unemployment low … and as Australians, we have made a lot of progress over the course of the last couple of years.”

Opposition Leader Peter Dutton, who last week warned a rate cut could be followed by a rate increase, said any action by the Reserve Bank would not be enough to offset the cost pressures facing families.

“It’s not just if their mortgage comes down by 0.25 per cent, it’s the fact when you go to Coles or Woolies or the IGA that you’re paying more and more and more for food and for produce,” he said.

Any RBA decision will be the last under the bank’s current meeting arrangements. From the end of February, a new monetary policy committee will set interest rates, while governance of the bank will be handled by the board. The committee will hold its first meeting on March 30 and April 1.

Financial markets put the chance of a rate cut on Tuesday at almost 95 per cent, and a follow-up cut is expected by May.

Betashares chief economist David Bassanese warned if the bank held interest rates steady on Tuesday, it would hurt the RBA’s public standing and cruel the hopes of many Australians with mortgages.

He said the bank should consider a 0.35 percentage point rate cut, taking the cash rate to 4 per cent, which would then enable it to play down the prospect of a follow-up reduction in the near term.

“To not cut rates this week would effectively renege on a promise to deliver interest rate relief once there was sufficient progress on lowering inflation – it would break the hearts of millions of Australians and undermine the RBA’s still-tarnished public reputation,” he said.

Deutsche Bank macro strategist Lachlan Dynan said that if the bank was to hold interest rates steady, it would lift the value of the Australian dollar, which has climbed to a two-month high of US64¢.

“Under a surprise hold, we see the Australian dollar to the US dollar rising by 0.5 per cent to 1 per cent,” he said.

Apart from deciding interest rates, the RBA will release its latest outlook for the economy which is expected to confirm a further easing in inflationary pressures. The heavy expectation for a rate cut on Tuesday is due to softer-than-expected inflation reports over the past two months.

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