RBA divides economists yet again

The Reserve Bank of Australia (RBA) has divided economists yet again on whether it will hold the cash rate at 3.85 per cent or lift it ahead of its monetary policy decision coming up on Tuesday.

According to this month’s Finder RBA Cash Rate Survey which polled 39 experts and economists, 56 per cent of them said the RBA will press pause on a further cash rate increase in June, leaving 44 per cent of them forecasting a rate hike.

Of the economists predicting a rise, 88 per cent of them believe the cash rate will be lifted by 25 basis points, bringing it to 4.10 per cent.

Just over two-thirds (67 per cent) of all the experts surveyed also said they believe the RBA will then hold the cash rate in July. Of 33 respondents, just under 40 per cent of them predicted a cash rate peak of between 3.85 per cent and 4.10 per cent, while 18 per cent said it will peak between 4.10 per cent and 4.35 per cent. A further 18 per cent also said it will peak at over 4.35 per cent.

“Our panel continues to be heavily divided – demonstrating the uncertainty in the market around the RBA’s strategy,” Graham Cooke, Head of Consumer Research at Finder, said.

“Despite the RBA board being heavily criticised due to its unprecedented series of rate hikes, the recent uptick in inflation may be enough to trigger another rate increase.

“Our experts forecast a maximum of two more rate rises this year. After that, the flood waters should start to subside.”

This comes at a time where the rental crisis continues as supply cannot keep up with demand, and younger renters are having to face cost of living pressures with increased mortgage costs passed on.

The majority of 33 survey participants (85 per cent) also said they don’t expect inflation to align with the RBA’s two-per-cent target until the June quarter of 2024 or later, despite the latest figure recording its first drop since September 2021 to seven per cent.

“RBA is bound to increase the cash rate as all key economic indicators show signs towards tightening monetary policy,” Mala Raghavan, Head of Discipline (Economics) at the University of Tasmania’s School of Business & Economics, said.

“The inflation figure increased to 6.8% due to rising fuel prices, new dwellings and other essential items such as food and beverages, thus putting upward pressure on households’ living cost index. Employment figures are pretty robust, with the unemployment rate hovering around 3.6% while the labour market participation rate remains at 66.7%.”