Over the past 14 months, the RBA has continued its quest to tame high inflation, which is proving sticky, delivering 12 interest rate hikes to reach a cash rate of 4.10% - an eleven-year high.

This begs the question: does the Board have more gas in the tank to deliver another 0.25% hike tomorrow?

Predicting the RBA’s next move has become increasingly harder for markets and economists, as the arguments for and against each rate increase remain ‘finely balanced.’

The RBA has softened its language around how high interest rates will go in every post-meeting statement, with many experts predicting ‘only one to two more hikes to go till we reach the peak.’ Yet, this statement has been said for months now, pushing the finish line further and further out of reach.

Last month’s interest rate decision was expected to hold steady, but the central bank surprised by adding another 25 basis points to the official cash rate. 

This forced many major bank economists to revise their predictions for the rest of the year, with many expecting rate hikes in July and August. 

That said, there is a high chance a pause could be on the cards tomorrow as inflation fell to 5.6% in May, down from 6.8% the month prior.

As of 30 June, market pricing ascribes a 68% chance of a hold at tomorrow’s Board meeting.

However, three out of four major bank economists' predictions remain hawkish, with NAB, ANZ, and Westpac pencilling in a 25 basis point lift.

AMP Chief Economist Shane Oliver said the “continuing downtrend” in inflation provides breathing space for the RBA to pause its hikes on Tuesday, but believes the central bank will opt for another 0.25% increase.

“On balance we think that the RBA is likely to opt for another 0.25% hike in the week ahead given its concerns about still high underlying inflation, sticky services inflation and rising wages growth,” Mr Oliver said.

“Either way the RBA will likely retain its tightening bias and we are continuing to allow for another two more hikes taking the cash rate to 4.6% over the next few months.”

CommBank - the lone wolf, RBA to hold

CommBank Senior Economist Belinda Allen said while the July Board meeting remains ‘live’ given the RBA’s tightening bias and heightened concerns over inflation risks, the major bank expects no change to the cash rate.

“The argument for a hike in July will come down to the same arguments put forward in June,” Ms Allen said.

“That is, a perceived threat of upside risks to inflation and embedding high inflation into price and wages settings regardless of the lower‑than‑expected monthly CPI.

“The recent data flow has been mixed and we think this affords the RBA some time to slow its hiking cycle, pausing in July, and wait for the usual August forecast refresh and quarterly CPI print ahead of the August meeting.”

CommBank economists predict the RBA will present one final 25 basis point rate hike in August to reach a peak of 4.35%.

ANZ - 25 basis point hike incoming

ANZ Senior Economist Adelaide Timbrell said while the recent fall in inflation is encouraging, it’s not enough for the RBA to pause.

“We still expect the RBA to raise the cash rate in July and August,” Ms Timbrell said.

“Though given the last two decisions were described by the RBA Board as ‘finely balanced,’ there is a chance the monthly CPI data could shift the RBA to a pause in July.

“This would shift the timing of our forecast peak cash rate of 4.6% but not the level of peak.”

NAB - upwards and onwards: +0.25

NAB Economist Taylor Nugent said the major bank sees little value in the RBA pausing this month.

“We still expect the RBA to raise interest rates twice further in coming months and we see little real value from skipping July,” Mr Nugent said.

“That said June was a finely balanced decision so a delay until August would not surprise.

“However, the cumulative data this week, and the strong employment data earlier this month, strengthen the case for a hike.”

Westpac - 0.25% increase on the cards

Westpac Chief Economist Bill Evans said a terminal cash rate of 4.60% is likely to be sufficient enough to achieve the central bank’s inflation objectives.

“We confirm our view that the Board will decide to lift the cash rate by 0.25% to 4.35% at the July meeting with a further 0.25% increase to follow in August,” Mr Evans said.

“With core inflation holding above 6%; the unemployment rate holding nearly 1 ppt below the NAIRU (RBA’s estimate) and the cash rate only around 1 ppt into contractionary territory, the cash rate will need to go higher.

“A second pause, to gather further information, seems unnecessary and only risks the need for the cycle to extend even further into 2023 when the prospects for damage to the economy increase substantially.”

Westpac has pushed back its first rate cut prediction, now pencilling in May 2024 instead of February.

Read More: When will the RBA lower interest rates?


Advertisement

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Update resultsUpdate
LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
6.04% p.a.
6.06% p.a.
$2,408
Principal & Interest
Variable
$0
$530
70%
Featured Online ExclusiveUp To $4K Cashback
  • Immediate cashback upon settlement
  • $2,000 for loans up to $700,000
  • $4,000 for loans over $700,000
5.99% p.a.
5.90% p.a.
$2,396
Principal & Interest
Variable
$0
$0
80%
Featured Apply In Minutes
  • No application or ongoing fees. Annual rate discount
  • Unlimited redraws & additional repayments. LVR <80%
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
6.14% p.a.
6.16% p.a.
$2,434
Principal & Interest
Variable
$0
$250
60%
Featured Unlimited Redraws
  • No annual fees - None!
  • Get fast pre-approval
  • Unlimited additional repayments free of charge
  • Redraw freely - Access your additional payments when you need them
  • Home loan specialists available today
Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of . View disclaimer.

Image by aopsan via freepik





Ready, Set, Buy!


Learn everything you need to know about buying property – from choosing the right property and home loan, to the purchasing process, tips to save money and more!

With bonus Q&A sheet and Crossword!

By subscribing you agree to our privacy policy