By Devayani Sathyan
BENGALURU (Reuters) – Australia’s central bank will keep its interest rate unchanged at 3.6% on Tuesday for a second consecutive meeting to assess the impact of past hikes on inflation, according to a Reuters poll of economists who were split on where it would peak.
Although inflation eased from 7.8% to 7% last quarter, it was still well above the Reserve Bank of Australia’s target range of 2%-3% and stronger than the Reuters poll median of 6.9%.
If elevated inflation persists, economists say this could pressure the RBA to consider raising rates again in coming months.
“Nothing in this major data release is likely to disrupt the Reserve Bank’s decision to hold in order to assess the lags of monetary policy. But we do think further monetary policy tightening will be needed,” said Adelaide Timbrell, senior economist at ANZ.
“Inflation for the June quarter will come out in late July and will give the Reserve Bank some key information coming into their August meeting and we think that inflation number will be high enough…to allow the Reserve Bank to make that call in August.”
Over 75% of economists, or 26 of 34 polled in an April 26-28 Reuters survey said the RBA would hold its official cash rate at 3.6% at its meeting on May 2.
The remaining eight respondents expected a 25 basis point hike to 3.85%, a level not seen since April 2012. But interest rate futures are pricing in no further hikes from the current rate.
Among major local banks, ANZ, NAB, and Westpac expect a pause on Tuesday while CBA predicted a 25 basis point hike.
A strong majority, 30 of 34, expected no move in June either, while four expected a 25 basis point hike.
That was a significant change from an April 3 poll where a similar majority, 21 of 26, predicted at least one 25 basis point hike to 3.85% or higher by mid-year.
Several economists have instead pushed forward rate expectations to the third quarter, with 13 of 34 expecting a 3.85% peak then. Four saw the peak at 4.1%, and one said 4.35%. The remaining 16 expected rates to remain at 3.6%.
While there was no majority view, the median forecast showed the cash rate reaching a peak of 3.85% in Q3.
The RBA has said a pause did not indicate tightening was over and much would depend on incoming inflation data.
Inflation was expected to average 6.1% in the June quarter and was not expected to fall below the central bank’s target until at least mid-2024, according to a separate Reuters poll.
“We continue to expect the RBA to act on its tightening bias over coming months,” noted Chris Read, Australia economist at Morgan Stanley, who expects two more 25 basis point rate hikes, in both August and September.
“Underlying inflation drivers including wages, rents and energy costs are still accelerating.”
(Reporting by Devayani Sathyan; Polling by Anant Chandak; Editing by Ross Finley, Jonathan Cable and Christian Schmollinger)
