RBA Preview: Forecasts from 10 major banks, hotter inflation supports a rate lift-off

The Reserve Bank of Australia (RBA) will announce its interest rate decision on Tuesday, May 3 at 04:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of 10 major banks regarding the upcoming central bank's decision.

The Australian central bank is on course to deliver its first rate hike in 11 years, as it is widely expected to raise the Official Cash Rate (OCR) by 15 basis points (bps) to 0.25% from a record low of 0.10%, seeking to keep inflation in check.

Deutsche Bank

“We now expect a 15bps hike with an additional 50bps in June.”

ANZ

“We now expect the RBA to hike by 15bp. Inflation pressures have momentum and have broadened. A cash rate target of 0.1% is inappropriate against this backdrop.”

Natixis

“We expect the RBA to act already in May given that headline CPI inflation has been above the 2-3% target range for four consecutive quarters. And the labor market is tight. More specifically, we expect the RBA to raise the cash rate by 40 bps to 0.5% at the May meeting.”

Westpac

“We anticipate an increase of 15bps, to 0.25%, up from a record low of 0.10%. There will be the adoption of a strong tightening bias justifying the decision, as well as the signalling of a follow-up move in June. We expect a series of moves in 2022 (including 25bps hikes in June, July and August), lifting the cash rate by year-end to 1.5%, then rising to a peak of 2.0% in mid-2023.”

Standard Chartered

“The RBA is likely to start its rate hiking cycle at the upcoming May meeting. We expect the central bank to lift its policy rate from emergency levels of 0.10% to 0.25%. We think the latest high inflation print (Q1 trimmed mean rose to 3.7% YoY, well above the central bank’s target range of 2-3%) may mean that the RBA needs to move earlier, but not necessarily by a full 25bps, in May. Thereafter, we expect the central bank to hike 25bps per meeting from June through to December, taking the policy rate to 2% by year-end. However, we think the RBA may only hike once by 25bps in March 2023, taking the near-term terminal rate to 2.25% (unchanged from our previous call), a slight positive real rate as growth and inflation slow.”

ING

“What was shaping up to be just a position-setting meeting ahead of an actual hike later this quarter is now looking likely to deliver not just a rate hike, but perhaps a 40bp one together with a strong nod towards front-loading at subsequent meetings. This follows a much higher-than-expected inflation reading for 1Q22. The market is already heavily pricing in rate hikes from the RBA so the market reaction may be modest.”

CE

“We think the RBA needs to begin tightening policy. The RBA might want to avoid politicising its decision and wait until after the federal election in May. But with a number of politicians voicing their opinion on rate hikes, the RBA should demonstrate its independence by ignoring the politics and focusing on the economic data. We now think the Bank will kick off its hiking cycle with a 15bp hike in May.”

TDS

“After the red-hot inflation print, next week's meeting is a very close call but for now we maintain our view of no hike. We don't expect the RBA to hike in an election month, and it could wait for Q1 wages print on 18th May to justify a June hike given its focus on wages growth. However, the risk for a 40bps hike in June is likely higher if wage growth surprises to the upside.”

SocGen

“We expect the RBA to increase the cash rate target from 0.10% to 0.25%. The RBA is likely to acknowledge that underlying inflation significantly deviated from the 2-3% target range in 1Q22, and to say that it will set policy to support inflation outcomes consistent with the target. In other words, policymakers will become decisively hawkish, suggesting a fast pace of rate hikes in the near-term. The RBA will likely maintain its upbeat outlook on economic growth, despite the uncertainty surrounding the war in Ukraine and the lockdowns in China.”

Citibank

“The RBA is expected to raise the cash rate by 15bps, from 10bps to 25bps. Risk is that the Board could consider a 40bp increase (in line with market pricing), but we expect a follow-up 25bp rate hike in June, which should negate the reason to lift by 40bps this week. The other risk is that the Board may delay the hike to June because it’s waiting for Q1 WPI and National Accounts. Balance sheet roll-off – the Board will likely allow maturing bonds to roll-off its balance sheet, rather than reinvest maturities.”