Which way will rates go?

Here's what most economists are predicting as the RBA's next move

Which way will rates go?

The Reserve Bank of Australia is expected to hold the cash rate to its current level of 3.6% at Tuesday’s board meeting as data indicates falling household spending – although some believe the RBA decision will be a “close call”.

Futures markets have priced in no chance of a cut at Tuesday’s meeting, according to a report by The Australian. Markets are betting on a one-basis-point rise in June before cuts begin later in the year.

“Falling Australian inflation should enable the Reserve Bank to remain on hold in the week ahead, but it’s a close call,” AMP Capital chief economist Shane Oliver told The Australian. “While another RBA hike on Tuesday can’t be ruled out given RBA concerns about wages growth and faster population growth adding to housing-related inflation and rising wealth, ou balance we expect the RBA to leave rate on hold for May with the faster-than-expected fall in inflation providing it with greater scope to continue the pause in order to better assess the impact of past rate hikes. Either way, from later this year or early next, we anticipate rate cuts to deal with a slowing economy.”

The central bank kept rates on hold last month after hiking them 10 consecutive times since May 2022.

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Twenty-one of thirty economists recently surveyed by Bloomberg predicted that the RBA would hold the cash rate steady at its Tuesday meeting. Among those predicting a 25-basis-point hike were COmmonwealth Bank, Barclays and Credit Suisse, The Australian reported.

Data released last week by the Australian Bureau of Statistics showed that headline CPI growth fell to 7% annually in the March quarter, coming in under the RBA’s forecast and down from 7.8% in the December quarter, The Australian reported. Trimmed mean inflation dropped to 6.6% annually, also coming in under the central bank’s predictions.

The fall spurred Westpac chief economist Bill Evans to predict on Friday that the RBA wouldn’t hike the cash rate beyond its current level of 3.6%, according to The Australian.

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