RBA to Hold Cash Rate at 3.60% in May, but May Need to Raise Again: Reuters Poll

BENGALURU, India (Reuters) – Australia's central banks will hold its interest rate at 3.6% for a second time on Tuesday to evaluate the impact of previous hikes on inflation. This is according to a Reuters survey of economists that were divided on when it would reach its peak.

Although the Reserve Bank of Australia targets a range of 2% to 3%, the inflation rate was well above this and higher than the median of the Reuters poll of 6.9%.

According to economists, if inflation continues to rise, the RBA may be compelled to raise rates in the coming months.

The Reserve Bank will not be influenced by this data release to continue to wait to see how monetary policy is affecting the economy. "We do believe that further monetary tightening is needed," said Adelaide Timbrell senior economist at ANZ.

The Reserve Bank will have key information to use at their meeting in August, and we believe that the inflation number for the second quarter will be high enough... to allow them to make this decision in August.

In a Reuters poll conducted between April 26 and 28, over 75% of the economists surveyed, or 26 out of 34 respondents, said that RBA will keep its official cash rate at 3,6% during its May 2 meeting.

Eight respondents predicted a hike of 25 basis points to 3,85%, the highest level since April 2012. Interest rate futures, however, do not anticipate any further increases from the current rate.

Among the major local banks, ANZ NAB and Westpac are expecting a pause Tuesday, while CBA is predicting a 25-basis point increase.

Thirty-four out of thirty-four respondents expected the same in June, while only four predicted a hike of 25 basis points.

This was a marked change from a poll conducted on April 3, where a similar number, 21 out of 26, had predicted a minimum 25 basis point increase to 3.85% by mid-year.

Many economists are instead pushing forward their rate expectations into the third quarter. Thirteen of 34 expect a peak at 3.85%. Four economists predicted a peak of 4.1% and another said 4.35%. 16 of the remaining 17 expected rates to stay at 3.6%.

The median forecast indicated that the cash rate would reach a maximum of 3.85% during Q3.

The RBA said that a pause in tightening did not mean it was finished and a lot would depend on the incoming inflation numbers.

According to a separate Reuters survey, the inflation rate was forecast to be 6.1% on average in the second quarter of the year and not to drop below the central banks' target until mid-2024.

Chris Read, Australia economist for Morgan Stanley, said that he expects the RBA will continue to tighten its bias in the coming months. He expects to see two additional 25 basis point rate increases, both in August and September.

"The inflation drivers, including rents, wages and energy costs continue to accelerate."