Weaker-than-expected inflation data today has raised the prospects of a Reserve Bank (RBA) rate decision next week that mortgage holders and ASX shares investors will actually like.
A sample of expert opinions shows many think the RBA is likely to pause rate rises for the first time in 11 months when the board meets on Tuesday to discuss its next decision.
According to the Bureau of Statistics' latest CPI numbers, inflation for the 12 months to 28 February was 6.8%. That's still high by historical standards but a hefty fall from the 7.4% recorded in January.
The figure was also below forecasts of 7.2%, thereby surprising the market.
There was an immediate and continual uplift in the S&P/ASX 200 Index (ASX: XJO) from about midday after the report was released.
Is it enough to convince the RBA to keep the official cash rate steady at 3.6%?
Let's see what the experts think.
What will the next RBA rate decision be?
According to the Australian Financial Review (AFR), interbank futures have scaled back expectations of a rate rise in April from 18% to 3% following today's inflation figures.
The AFR reports the following RBA rate decision predictions from brokers, economists, and other experts.
Citi thinks the RBA rate decision might be a hold.
Citi economist Josh Williamson said:
We reconcile the difference by now forecasting the cash rate on hold but for guidance to keep open the option of a further tightening in monetary policy should subsequent data show ongoing stubborn inflation pressures or higher than expected wages growth from the still tight labour market.
Catherine Birch from ANZ says the data shows ongoing strong inflation momentum, so she tips an 0.25% rise.
Birch said:
Australia's monthly CPI indicator showed inflation momentum remains strong and is not slowing as much as the fall in annual inflation would suggest. Along with previous data releases, this makes us comfortable with our call that the RBA will raise the cash rate 25 basis points at its April meeting.
Su-Lin Ong of RBC Capital Markets reckons the RBA will pause in April before hiking again in May.
Ong said:
We push back our April hike, most likely to May. The window to hike further appears small ahead of the step-up in fixed rate mortgage expiry from mid-year but the RBA may be forced to resume tightening if inflation proves sticky.
Paul Bloxham at HSBC thinks the RBA rate decision next week will be a pause in rate hikes.
Bloxham said:
Our rule of thumb has been that once the RBA is convinced that inflation has peaked and that the unemployment rate has troughed, the RBA would pause. We now have more evidence that inflation has indeed passed its peak, economic activity is slowing, and the unemployment rate is past its trough.
Beyond April, we expect the RBA to keep the cash rate at 3.60 per cent for a number of quarters.
Diana Mousina, a senior economist at AMP, also tips that the RBA will take a break in April, partly due to the banking sector turmoil in the United States and Europe that has brought down three banks.
Given the weakening in domestic economic momentum, the slowing in inflation and the risks in the global banking sector, we see the RBA keeping the cash rate on hold next week …
Overall, the data showed that while the Australian economy is holding up, it has lost some momentum since late 2022 which is a sign that interest rate hikes are working.
Brendan Rynne, KPMG chief economist, thinks inflation is still too high and employment too strong for the RBA to start pausing rates.
He thinks the RBA rate decision next week will be an 11th consecutive rise, at 0.25%, followed by a pause.
Dr Rynne said:
The end of the tightening cycle now appears to be very close.
According to reporting in The Australian, Goldman Sachs is in the rate rise camp for next week.
Goldman Sachs Australia chief economist Andrew Boak said:
Ultimately, Australian inflation is far too high – with clearer signs of an acceleration from persistent sources in the services sector.
UBS has reaffirmed its tip for an RBA pause in April, a final 0.25% hike in May, and a cut in November.
UBS chief economist George Tharenou said:
The February monthly CPI indicator implies CPI is very likely tracking below the RBA's implied profile.
Assuming financial market volatility/dislocation eases by May and CPI does not continue surprising on the downside, we still expect the RBA to hike 25 basis points, to a peak of 3.85 per cent at their May meeting.
EY chief economist Cherelle Murphy is not optimistic that the RBA rate decision will be to hold steady.
A few months of softer indicators does not necessarily mean inflation is on a one way track down, as indicated by recent data in other developed countries.
With inflation remaining uncomfortably high, a resilient labour market, and business conditions sitting above pre-Covid levels, there is still a case for further rate hikes.
Capital Economics tips the RBA to pause rate rises next month before one final increase in May.
