Despite the Reserve Bank of Australia (RBA) holding rates steady last month and inflation appearing to reach a peak, 55 per cent of experts think the board will lift the cash rate again at the May meeting.
According to a Finder survey of 42 industry experts, 55 per cent said the RBA would increase the official cash rate on tomorrow.
While 45 per said the board would hold interest rates steady for another month.
If the cash rate is to rise, 50 per cent tipped a 25 basis point increase, while just 5 per cent think rates could go up by 15 basis points.
Finder Head of Consumer Research Graham Cooke said it would be another close decision this month.
“This month’s result is the tightest we’ve seen since the RBA started hiking the cash rate, highlighting the difficulty of managing inflationary pressures without breaking too many household budgets,” Mr Cooke said.
“While it’s anybody’s guess, I think the RBA will likely hold again this month, as there are some indications that the first 10 rate rises are only just starting to have an effect.
“The full impact of the new rates may not be felt until later this year.”
REA Group, Executive Manager Economic Research Cameron Kusher said the RBA could raise the cash rate at tomorrow’s meeting, although it was a close call.
“Inflation was about where expected but the outcome of the RBA Review was pretty clear that they expect the RBA to be much more focused on keeping inflation at the middle-point of the band,” Mr Kusher said.
“Of course, the RBA Review is not implemented but the messaging was clear and I think it offers the RBA cover to increase rates again.”
Mortgage Choice Chief Executive Officer Anthony Waldron expects an increase this month, with inflation still above the RBA’s target band.
“The latest economic data points to a cash rate increase in May,” Mr Waldron said.
“The labour market data for March was strong, and the latest Consumer Price Index (CPI) data from the ABS revealed inflation remained high in the March quarter, leaving the RBA with little choice but to raise the cash rate.”
BIS Oxford Economics Head of Macroeconomic Forecasting Sean Langcake said despite inflation peaking, core inflation pressures remained strong, owing to very tight labour and rental markets.
“These sources of inflation will be persistent,” Mr Langcake said.
“The question now becomes how quickly the RBA wants inflation to return to target.
“They have been surprisingly dovish in some communications, but we still expect further tightening with an eye toward maintaining credibility and anchoring expectations.”
According to the survey, 76 per cent of experts believe the RBA will hold the cash rate in June.
AMP Capital’s Chief Economist Shane Oliver said the RBA was more likely to hold at this month’s meeting as well.
“Inflation has now peaked and is falling a bit faster than the RBA expected,” Mr Oliver said.
“Although it’s a close call, this bolsters the case – along with increasing evidence of slowing growth and a cooling labour market – for the RBA to leave rates on hold in May ahead of an eventual cut in rates to support struggling economic growth from later this year and through 2024.”
Moody’s Analytics, Macroeconomist, Assistant Director, Harry Murphy Cruise said price pressures were undoubtedly easing and he expected the RBA to hold.
“With the lagged impact of monetary policy, another pause to assess how the backlog of rate hikes is working is warranted,” Mr Murphy Cruise said.
“We expect the board to hold rates steady at its next meeting, keeping a rate hike in the back pocket for June if needed.
“In the meantime, board members will want to see heat come out of the red-hot labour market and retail sales moderate.
“If that doesn’t happen, you can bet your bottom dollar the board will reach into that back pocket. We put the odds of that happening at 65 per cent.”
