(Reuters) – Commonwealth Bank of Australia (CBA) expects the country’s central bank to pull brakes next week on one of the most aggressive tightening cycles in decades as data signalled signs of the economy slowing and inflation peaking.
Gareth Aird, head of Australian Economics at CBA, sees a 55% probability of the Reserve Bank of Australia (RBA) pausing on April 4, after recent inflation and retail sales data showed clear signs of rising interest rates starting to pinch consumers.
“We believe a pause would be the appropriate policy move at this stage, given the RBA has put through an incredible amount of tightening in a short space of time,” Aird wrote in a note.
The RBA has hiked its interest rate at every meeting since last May, hiking a cumulative 350 bps over 10 meetings – one of the most aggressive tightening cycle in decades – in its fight to contain runaway inflation.
Aird, however, notes the central bank may retain “full optionality to raise the cash rate in May” if data comes hotter-than-expected over the next month.
“A pause therefore in April coupled with a hiking bias makes a lot of sense.”
Westpac Banking Corp, the country’s third-biggest lender, also forecast a pause next month with a final hike in May as it expects returning inflation to the target range to remain the key theme.
Other two of the “Big Four” Australian lenders – National Australia Bank (NAB) and ANZ Group Holdings – expect a quarter-point hike next week, with the latter expecting another in May.
NAB, the no. 2 bank, continues to forecast rate cuts in the first half of 2024, seeing the rates down at 3.1% as the economy slows and unemployment rises.
(Reporting by Sameer Manekar in Bengaluru; Editing by Sherry Jacob-Phillips)
