- ANZ is now expecting a 25 basis point increase to the cash rate in May
- It joins its big bank peers amid widespread market sentiment the cash rate will lift to 4.1%, up from its current 3.85%
- But ANZ said the rise is not as clear cut as market pricing would suggest
Australia's fourth-largest home lender has revised its cash rate outlook, now expecting another increase to the cash rate in May.
The call comes a day after the latest inflation data was released, revealing Australia's annual headline inflation rate held steady at 3.8% in January.
But underlying inflation - the Reserve Bank's preferred measure - climbed to 3.4%, up from 3.3% the previous month.
ANZ said its changed outlook was the result of a string of upward inflation shocks over recent quarters as well as the climb in the trimmed mean figure in January.
ANZ's head of Australian economics Adam Boyton said while the January data still points to a 0.8% quarter-on-quarter trimmed mean, the risks are now skewed to the upside, not the downside.
"We now see the most likely path of policy being a 25bp rate hike at the May RBA Board meeting," he said.
"Beyond that, we see the cash rate remaining at 4.1% for an extended period."
Not 'clear cut'
However, ANZ pointed out the case for a May cash rate increase is "not as clear cut as market pricing would suggest".
It said the three-month annualised month-on-month rate of trimmed mean inflation - the Reserve Bank's preferred measure - is trending lower while the pace of household spending growth also looks to be slowing.
ANZ cited figures showing yearly growth in spending was at 6.3% in November and has now eased to 5.0%.
RBA 'not predetermined'
Mr Boyton also said the RBA had made it clear it is not on a predetermined path for policy.
The RBA's most recent minutes said "it was not possible to have a high degree of confidence in any particular path for the cash rate".
ANZ said it's those arguments that also suggest a rate hike at the board's March meeting is unlikely.
It's clear from past rate movements the RBA's monetary policy board prefers to adjust rates after the release of quarterly Consumer Price Index (CPI) data.
The next quarterly CPI data is due on 29 April with the RBA's May meeting scheduled for 3-4 May.
What are markets saying about a cash rate hike in May?
ANZ now joins its big four counterparts in predicting a May increase to the cash rate from its current 3.85% to 4.1%.
However, there remains little expectation of a rate increase at the RBA's next meeting on 16-17 March, although odds of a surprise hike firmed slightly after Wednesday's inflation figures.
According to the ASX cash rate tracker, markets are now pricing in a 13% chance of a cash rate hike next month, up from 9%.
Many commentators have joined the chorus of those forecasting a likely May rise with the vast majority saying it will be the last one for 2026.
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