Banks predict rate pause for June

With the Reserve Bank of Australia (RBA) due to meet tomorrow (6 June), the major banks have made their predictions on the decision.

The RBA surprised many economists last month when the decision was made to lift the official cash rate by 25 bps that brought the cash rate up to 3.85 per cent, after it was widely believed that there would be a pause.

Of the four major banks, the Commonwealth Bank of Australia was the only one to correctly predict the rate hike and is now expecting the RBA to leave the cash rate on hold at 3.85 per cent at the June board meeting.

However, the major bank considers the meeting now “live” and predicts a 70 per cent chance to no change and a 30 per cent chance that the RBA will lift rates by a further 25 bps to 4.1 per cent.

CBA head of Australian economics Gareth 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 per cent to be the peak in the cash rate, but the near-term risk sits with another hike).”

According to Westpac chief economist Bill Evans, the meeting is live in that the “case for a further rate increase is likely to be seriously discussed”.

Despite this, Westpac also expects the RBA to decide on a pause at 3.85 per cent while continuing to emphasise its tightening bias.

Mr Evans noted the line, “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will depend on how the economy and inflation evolve”, will likely be repeated in RBA governor Philip Lowe’s statement post-meeting.

“Note that the qualifier ‘may be required’ was used despite the minutes for the May meeting showing that the board had become more concerned about range of issues including immigration; house prices; and the inflation forecast being to only reach the top of the target range by mid-2025,” Mr Evans added.

“Since the May board meeting the governor has been publicly voicing more concerns about inflation risks, particularly relating to wages.”

National Australia Bank (NAB) also predict the central bank to hold the cash rate in June, however, ANZ head of Australian economics Adam Boyton says the bank expects a rate rise in either June or July.

"Ahead of that we expect an increase in either June or July (calling the month is a line ball decision).

"Given our view that higher rates are more likely and the tendency of the RBA not to delay, at the margin we favour a June rate rise," Mr Boyton stated.

Unlike CBA that predicts that the peak of the RBA’s tightening cycle has been realised, Westpac, NAB, and ANZ foresee further rate rises after June.

Westpac and NAB have predicted a 25-bp rise during the August meeting to bring the cash rate up to 4.1 per cent, while ANZ on Friday (2 June) updated its terminal cash rate to 4.35 per cent (up from 4.1 per cent), saying that August was "most likely for a move".

[RELATED: April inflation data weakens RBA outlook: Economists]