RBA should keep rates at 3.85% in June but may hike soon. Despite inflation well above the target range, a Reuters poll of economists found that Australia’s central bank will retain its key interest rate at 3.85% on Tuesday.
Financial markets and most analysts were surprised last month when the Reserve Bank of Australia (RBA) hiked rates after pausing in April.
RBA Governor Philip Lowe told legislators, “We’ve got work to do there” since inflation has yet to fall to the RBA’s goal range of 2% to 3%.
21 of 32 analysts predicted the RBA would keep its official cash rate (AUCBIR=ECI) at 3.85% on June 6, despite forecasts for further rate hikes.
CBA, NAB, and Westpac anticipate a Tuesday stoppage. ANZ and ten others predicted a 25 basis point boost.
Those who predicted a rate hike in the May 29-June two polls. Interest rate futures predicted a hike on June 6 with a one-in-three possibility.
We foresee a pause in June since the RBA has delayed rate hikes. However, NAB economist Taylor Nugent said, “And having gone in May after pausing in April, we are not sure the data makes the case for them to go as soon as June, even as we do still expect (one) more hike.”
Nugent added, “Interest rates are still not sufficiently restrictive for the RBA to be comfortable inflation will get back to target in time.” “The RBA will move again in August,” we predict.
Since June 2021, inflation has been above the central bank’s objective.
Annual price increases increased to 6.8% in April from 6.3% in March. Last quarter’s quarterly inflation was 7.0%, with July’s figures due.
Many believe rates will need to climb, but last month’s poll found no consensus on where the cash rate will be by the end of the third quarter.
In recent months, the central bank’s stop-start approach has confused observers about how high rates should go.
20 of 29 respondents predicted rates of 4.10% or higher by end-September, including six who predicted 4.35%. Nine forecasts 3.85% rates.
If inflation data beats RBA expectations, they’ll likely hike. CBA’s head of Australian Economics, Gareth Aird, said, “So there’s a clear risk over the next two or three meetings that they hike (the) cash rate.”
The housing market forecast has improved, with home prices expected to plateau this year, compared to a near double-digit decrease three months ago.
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