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A rate rise may not be imminent, but is it inevitable?

While the general consensus is for the central bank to hold the cash rate at 4.35 per cent today, rate hikes may be “inevitable” to quell inflation.

The monetary policy board of the Reserve Bank of Australia (RBA) will hand down its cash rate decision for the month of May today (7 May), following the conclusion of its two-day meeting.

The RBA monetary policy board, meeting for the first time since March, is largely expected to announce no change to the official cash rate when it hands down its decision at 2.30pm AEST today.

As such, the majority of economists and industry commentators expect the central bank to hold the cash rate at its current rate of 4.35 per cent for the sixth consecutive month.


However, economists will this month be paying particularly close attention to the language being used by the board in the statement of monetary policy (and in the governor’s media conference later this afternoon), given stubbornly high inflation rates.

After the quarterly CPI data came in higher than expected, both the Commonwealth Bank of Australia and Westpac pushed back their forecasts for when the first rate movement may come. All four major bank economists now expect the first cut to come in November 2024.

The last time the monetary board met (in March 2024), the minutes of the meeting carried a more neutral stance, suggesting that the board did not include the RBA considering whether or not they would move (hike or cut) interest rates – despite previous meetings having considered these.

RBA governor Michele Bullock said during the press conference following the monetary policy meeting in March, that the RBA could not “rule anything in or out” in terms of further rate movements.

But there are now growing expectations that a cash rate increase may be coming; if not this month, then at sometime in the future.

ANZ’s economics team has said while they don’t expect the RBA to “explicitly discuss a rate hike”, the communication after the rate decision will be more hawkish than it was in March. Westpac Group chief economist Luci Ellis has said that a ”scenario necessitating a rate hike is not impossible, but it is unlikely, and it would only take shape later in the year”. Meanwhile, Gareth Aird, CBA’s head of Australian economics, said that the RBA board “may consider” the case to raise the cash rate in May, but he didn’t believe the current data is “sufficiently strong” for the RBA to begin tightening policy again.

But, at the time of writing, the ASX Rate Indicator (the 30-Day Interbank Cash Rate Futures contract) was indicating an 8 per cent expectation of an interest rate increase, to 4.60 per cent, today.

Moreover, Judo Bank’s chief economic adviser Warren Hogan is forecasting three rate hikes this year (in August, September, and November), taking Australia to a peak cash rate of 5.10 per cent.

The chief executive of aggregation company Finsure, Simon Bednar, has also now said that he believes there will be no rate reprieve for mortgagors this year, adding that cash rate hikes will be “inevitable” while inflation remains out of the RBA’s target band of 2–3 per cent.

Other considerations for the central bank would likely include the surge in population growth (which has exacerbated a housing shortage and pushed up rents), concern over upcoming impacts of wage rises, tax rate cuts, and major government spending.

While Bednar said a rate rise is unlikely at the RBA’s May meeting, he added the central bank would likely “be waiting to see the next quarterly [CPI] data given the highly charged nature of another rate rise”.

“I think the reality that will be sinking in for mortgage holders is we will not see any reduction in rates during 2024, as we previously thought we would,” the Finsure CEO said.

“With the possibility of further rate increases for mortgage holders, brokers will be helping customers cope with the headwinds.”

[Related: Cash rate peak may hit 5.1%: Economist]

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