Yesterday, the Reserve Bank of Australia (RBA) shocked economists and investors by leaving interest rates on hold.
The S&P/ASX 200 Index (ASX: XJO) fell 0.3% in response as the market digested the news.
Among those to get it wrong were the big four banks.
Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ), and National Australia Bank (ASX: NAB) had all predicted the RBA would cut the official cash rate by 25 basis points.
Meanwhile, financial markets had priced a 92% chance of a rate cut at yesterday's meeting. Investors believed that recent inflation data had sealed the deal.
However, the vast majority of economists and investors were wrong.
Only a handful of economists accurately predicted that the RBA would leave rates on hold.
It was later disclosed that the decision was split among board members, with 6 voting in favour and 3 voting against the decision.
Image source: Getty Images
Big four banks revise their predictions
With the cash rate remaining at 3.85%, the big four banks have updated their predictions.
As reported by Yahoo Finance, the big four banks now believe the next interest rate cut will be delivered in August.
During the post-decision press conference, RBA governor Michele Bullock also implied this outcome was likely. She noted that the board decided to "wait a few weeks to confirm that we're still on track to meet our inflation and employment objectives".
Giving some consideration to a contrarian view, Westpac Chief Economist Luci Ellis acknowledged there was a small risk that the RBA might leave interest rates on hold again in August if any surprises in Consumer Price Index (CPI) data materialised before then.
Ellis said yesterday's call "wasn't a shoo-in to cut, and in the end, the RBA chose caution over decisiveness".
Where will the cash rate end up?
The big four banks also updated their long-term projections.
CBA and ANZ are expecting two more 25 basis point cuts (August and November), which would see the official cash rate at 3.35% by the end of the year.
NAB is tipping three more 25 basis point cuts (August, November, and February), which would take the cash rate to 3.10%.
Westpac predicts four more 25 basis point rate cuts (August, November, February, and May). This would take the cash rate to 2.85% by May 2026.
The RBA's next meeting is scheduled for 12 August.
