RBA ‘likely’ to pause in August: CreditorWatch

The recent Consumer Price Index (CPI) data has shown “positive inroads” against the battle against inflation and, although services inflation is still on the rise, the main contributors are not responding to increases in the cash rate, making it likely for the Reserve Bank of Australia (RBA) to hold in August, according to CreditorWatch chief economist Anneke Thompson.

“In some positive news this month, June 2023 CPI data showed that inflation in Australia is on a steady downward trajectory, mirroring what is happening in most major economies around the world,” Ms Thompson said.

“The RBA will be closely watching forward labour force indicators, such as job vacancies and applicants per role, to get some comfort that we can expect easing in conditions later in the year.”

She added that as capacity utilisation and job vacancies fall and borrowers show signs of financial stress, it is “highly likely” that the RBA will hold the cash rate at 4.1 per cent, awaiting another month’s worth of data.

Major bank National Australia Bank (NAB) also expects the RBA to hold the cash rate on the back of a “lower-than-expected” CPI outcome, predicting that the RBA will wait for more information on the evolution of inflation and the economy and to observe the effects of lags in previous policy increases.

NAB’s economics team, led by chief economist Alan Oster, told Mortgage Business he expects a pause in August, with the potential of a further cash rate hike in September or October to a peak of 4.35 per cent.

Similarly, ANZ also expects a hold, with ANZ economist Madeline Dunk noting the sharp fall in June retail sales supports the case for the central bank to maintain the cash rate, attributing the slowdown in spending to rising mortgage payments and cost-of-living pressures.

Meanwhile, Westpac and the Commonwealth Bank of Australia believe that a further hike of 25 bps to bring the cash rate to 4.35 per cent is upon us.

Westpac chief economist Bill Evans stated the major bank has “consistently argued that a further increase in the cash rate should be the appropriate policy response at the August meeting”.

“We confirm that view,” Mr Evans said.

“We also believe that the Board should maintain its tightening bias, repeating the sentence: ‘Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame.’”

CBA economist Belinda Allen stated there was “enough evidence to suggest the path of least regret for the RBA is to lift the cash rate by 25 bps to 4.35 per cent in August”.

“This should provide an offset to any lingering risks in the inflation and wages outlook. We expect this to be the last rate hike of this cycle and for the RBA to be on hold until 2024,” Ms Allen said.

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