Economists predict rate rises are coming before August

One in five economists believe the Reserve Bank of Australia (RBA) will lift the official cash rate on May 3, while 84 per cent think a rise is coming before August.

The latest Finder Cash Rate Survey showed seven of the 32 economists surveyed believed the RBA would increase the cash rate at its meeting tomorrow, while 50 per cent said the rise wouldn’t come until June.

Almost all panellists (27/32) agree the cash rate will move by August.

Speculation has been growing that the RBA will bring forward its planned increase in the OCR after inflation hit 5.1 per cent last month.

Senior editor of money at Finder, Sarah Megginson said the majority of the economists surveyed said we would see a cash rate increase on the back of high inflation.

“With the vast majority of panellists expecting a rate move within the next two months, homeowners can be sure their mortgages are about to get more expensive,” Ms Megginson said.

“It must be noted however that this survey was conducted over the last week. 

“Interestingly, 6 of the 7 predictions for a May cash rate increase were submitted after Wednesday’s inflation results.

“Additionally, three of the big four banks have said they expect a rate rise on Tuesday,” Ms Megginson said.

Shane Oliver of AMP said the board is ready to hike rates this week.

“Inflation has blown out to above 5 per cent, full employment has been reached and it’s now only a matter of time before official wages data picks up,” Mr Oliver said.

“Delaying further will risk a rise in inflation expectations making it harder to get inflation back down.”

On the surface, the only thing delaying the RBA from raising rates is the upcoming Federal Election.

The RBA has previously stated it is waiting for further information on wage-price growth and that should delay a rate rise in May, according to Saul Eslake from Corinna Economic Advisory.

“There’s likely to be a case for raising rates at the May meeting (assuming the March quarter CPI out on Wednesday, after the deadline for completing this survey) shows ‘headline’ inflation above 4 per cent and ‘underlying’ inflation above 3 per cent,” Mr Eslake said.

“But the RBA seems (taking its words at face value) inclined to wait until after it has seen the March quarter WPI data, which doesn’t come out until 18th May. 

“So that points to June. 

“I’m not sure the March quarter WPI will show a significant acceleration in wage inflation, but if the RBA isn’t going to do the first increase in May, they may well end up doing 40bp in June.”

Noel Whittaker of QUT, agreed the Federal Election would delay the RBA rate rise.

“We all know rate increases are coming but I don’t think they will do it just before the election,” Mr Whittaker said.

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.