RBA to hike rates by another 50 bps in July to make up for lost time – Reuters poll

Australia's central bank will deliver another half percentage-point interest rate hike on Tuesday as it fights to tame surging inflation, marking the first time it has ever raised the cash rate by that magnitude at consecutive meetings, a Reuters poll found.

Key findings

After raising its benchmark rate by 50 basis points in a hawkish surprise last month, the Reserve Bank of Australia's (RBA) Governor Philip Lowe has played down the chance of rates being hiked by a super-sized 75 basis points, dampening weeks of speculation it would match the U.S. Federal Reserve's latest move.

But with inflation already at a 20-year peak of 5.1% in the first quarter and expected to approach 7% by the end of 2022, markets are wagering the RBA will have to raise rates faster, to near 3% by the end of the year.

All but one of 33 economists in the June 27-30 Reuters poll forecast the RBA would hike the cash rate by 50 basis points again at its July 5 meeting, taking rates to 1.35%. One economist expected a 25 basis-point hike.

Economists have also brought forward rate hike expectations considerably from the last poll in June. Nearly 60%, or 18 of 31, now expect the cash rate to reach 2.00% or higher by the end of September, 75 basis points higher than predicted previously.

A handful of economists doubted the neutral rate would be reached or surpassed, given Australians are sitting on A$2 trillion in mortgage debt, making them very sensitive to borrowing costs amid the growing cost of living crisis.

The poll showed inflation would remain well above the RBA's target range of 2%-3% until mid-2023. It was expected to average 6.1% this year and slip to 4.0% in 2023, a substantial upgrade from 4.2% and 2.8% predicted in April.

Australia's economy was forecast to grow 4.0% this year and 2.4% in 2023.

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