RBA to hold cash rate at 3.60% in May, but may need to raise again

Reserve Bank of Australia (RBA) will keep its interest rate unchanged at 3.6% on Tuesday for a second consecutive meeting to assess the impact of past hikes on inflation, per the latest survey of 34 economics.

Earlier in the day, Westpac also trimmed its Australia peak rate forecasts from 3.85% to 3.60%.

Key findings

Over 75% of economists, or 26 of 34 polled in an April 26-28 Reuters survey said the RBA would hold its official cash rate at 3.6% at its meeting on May 2.

The remaining eight respondents expected a 25 basis point hike to 3.85%, a level not seen since April 2012. But interest rate futures are pricing in no further hikes from the current rate.

Among major local banks, ANZ, NAB, and Westpac expect a pause on Tuesday while CBA predicted a 25 basis point hike.

A strong majority, 30 of 34, expected no move in June either, while four expected a 25 basis point hike.

Several economists have instead pushed forward rate expectations to the third quarter, with 13 of 34 expecting a 3.85% peak then. Four saw the peak at 4.1%, and one said 4.35%. The remaining 16 expected rates to remain at 3.6%.

While there was no majority view, the median forecast showed the cash rate reaching a peak of 3.85% in Q3.

Also read: AUD/USD Price Analysis: Marches towards previous support near 0.6650

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