With rising expectations of back-to-back interest rate hikes from the Reserve Bank of Australia, the S&P/ASX 200 Index (ASX: XJO) could receive a sizeable boost on Tuesday should the RBA opt to hold rates steady.
(I'm not holding my breath in hopes of a cut.)
As you're likely aware, at its last meeting on 3 February, Australia's central bank increased the official cash rate by 0.25%, bringing it back to 3.85%.
"The board considers that inflation is likely to remain above target for some time… and it was appropriate to increase the cash rate target," the RBA noted on the day.
The inflationary pressures the Aussie economy was facing in February – including housing and a tight labour market – are still in play this month. But since then, we've also witnessed the outbreak of the major Middle East conflict. That's seen global oil prices leap above US$100 per barrel.
So, is there still a chance ASX 200 investors could get an interest rate reprieve on Tuesday?
Here's what the experts are telling us.
Image source: Getty Images
What the experts forecast for Tuesday's RBA interest rate call
"For the RBA, an energy shock was the last thing they needed. Inflation was already running above target before the Iran conflict began," eToro market analyst Josh Gilbert said.
As for the likelihood of a Tuesday interest rate increase, Gilbert noted:
Deputy Governor Hauser's comments this week were about as close to a signal as you'll get without explicitly pre-committing to a move.
Saying that further price increases from Iran are 'not a helpful development', while reminding everyone of the RBA's commitment to bringing inflation back to target, is not the language of a central bank preparing to sit on its hands.
Gilbert said that whatever the outcome, the RBA's decision won't be an easy one this month.
"Petrol prices are climbing, which feeds directly into broader consumer prices, but that same energy shock could slow the global economy and weigh on growth," he said. "Governor Bullock has arguably one of the toughest calls since taking the job on her hands."
On Friday, the RBA rate indicator showed markets pricing in a 66% chance of an interest rate boost this Tuesday.
But Ebury market analyst Anthony Malouf doesn't expect the central bank to move quite so quickly.
"This oil price shock arrives at an awkward time for the RBA, given it was already forecasting inflation to remain outside its target band until mid-2027," he said.
Malouf added:
Despite these upside risks, we do not anticipate an immediate rate hike next week. Instead, we expect the board to use the March meeting to firmly put the market on notice and re-establish a clear hawkish bias.
The RBA will likely wait to digest data, in particular the full Q1 CPI print in late April, to definitively gauge the impact of the events in the Middle East. Indeed, we believe this will provide the necessary ammunition to deliver a 25bp rate hike at the May board meeting.
Stay tuned!
