RBA to hold rates at 3.85% in June, but may raise again soon – Reuters poll

By Devayani Sathyan

BENGALURU (Reuters) – Australia’s central bank will keep key interest rate unchanged at 3.85% on Tuesday despite inflation staying well above the target range, according to a Reuters poll of economists who were divided on when and where rates would peak this year.

The Reserve Bank of Australia (RBA) raised rates last month after pausing in April, confounding financial markets and a majority of economists who were expecting the central bank to hold.

So far there has been little evidence inflation will fall to the RBA’s target range of between 2% and 3% anytime soon and RBA Governor Philip Lowe said in a recent appearance before lawmakers “we’ve got work to do there.”

But while expectations for future rate hikes were very much alive, a strong three-quarters majority of economists, or 22 of 30, forecast the RBA to hold its official cash rate at 3.85% on June 6.

All major local banks – ANZ, CBA, NAB and Westpac – expect a pause on Tuesday.

The remaining eight in the poll taken between May 29 and June 1 poll expected a 25 basis point hike. Interest rate futures were pricing in a roughly one-in-three chance of a rate hike then.

TARGET RANGE

“We expect a pause in June because the RBA has slowed down the cadence of rate hikes. 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,” said Taylor Nugent, economist at NAB.

“The level of interest rates is still not sufficiently restrictive for the RBA to be comfortable inflation will get back to target in time,” Nugent added. “We think the RBA will move again by August.”

Inflation has stayed at or above the central bank’s upper target range since June 2021.

The latest monthly data showed annual price rises in April accelerated to 6.8% from 6.3% in March. On a quarterly basis, inflation was last reported at 7.0%, with the next set of data due in July.

While many say rates will still need to rise, there was no clear consensus about where the cash rate would be by the end of the third quarter, a split that has persisted from a poll conducted last month.

Some analysts have referred to a stop-start approach from the central bank in recent months as leading to confusion over how much higher rates will need to go, if at all.

More than half of respondents, or 18 of 28, expected rates to reach 4.10% or higher by end-September, including four who saw rates at 4.35%. The remaining 10 expected rates to stay at 3.85%.

“If the inflation data comes in stronger than the RBA’s forecasts, then they will likely deliver on that hiking bias. So there’s a clear risk over the next two or three meetings that they hike (the) cash rate,” said Gareth Aird, head of Australian Economics at CBA.

Meanwhile, the housing market outlook has improved significantly, with home prices expected to on average stagnate this year, compared with a near double-digit fall predicted three months ago.

(Other stories from the Reuters global long-term economic outlook polls package can be found on this link.)

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