RBA tipped to pause rate rises next week, but to hike later and (maybe) higher
ANZ has lifted its forecast for the peak in interest rates but along with a lot of economists, expects the Reserve Bank to hold its fire on the cash rate when it meets next week.
Australia's economy remained in positive territory, just in the national accountes figures released today(Photo: AAP Image/Joel Carrett)
ANZ said it was now tipping the RBA’s cash rate to get to 4.35 per cent, an increase on its previous forecast of 4.1 per cent.
“We consider August the most likely month for a move from the RBA, driven by the quarterly forecast update cycle and uncomfortable timing around the return of inflation to the target,” ANZ said.
QIC and the Commonwealth Bank also expect the RBA to pause next week and the bond market has priced in a 20 per cent chance of an increase in the cash rate.
QIC chief economist Matthew Peter said the so-called terminal rate, which is the peak of the interest rate cycle, would be at 4.1 per cent. It’s currently 3.85 per cent.
“Next week, I think the growth, labour market and wage price index data will win out and the RBA will pause, but down the track, most likely August after they get the CPI report, I think we will get another rate hike which will take the cash rate which will take the cash rate to 4.1 per cent and see the RBA done and dusted,” he said.
But the ANZ said the 4.1 per cent cash rate was no longer sufficient to bring inflation back to the target range.
It said that ahead of the August move there could be an increase in June or July.
It said that the increase in wages was not the issue. The real challenge was in the weakness of productivity growth.
The Commonwealth Bank head of Australian economics Gareth Aird said he also expected a pause next week with a 70 per cent of no change, but the meeting was now considered “live”.
“The 2023 Fair Work Commission decision to increase both the minimum and award wages by 5.75 per cent is broadly in line with what we think the RBA had pencilled in to their wages growth forecasts,” Aird said.
“We believe the domestic economy is now showing sufficient signs of slowing and we expect the RBA Board will judge that leaving the cash rate on hold is the appropriate policy move in June.
The Board can resume increasing the cash rate in July or August following a pause in June if the economic data makes the case (note that our base case is for 3.85% to be the peak in the cash rate, but the near-term risk sits with another hike).
The expected pause in interest rates came as house prices have begun to increase again. CoreLogic said the Brisbane house prices increased 1.4 per cent in May. In Sydney they jumped 2 per cent.
