RBA Preview: Forecasts from seven major banks, playing the waiting game

The Reserve Bank of Australia will announce its decision on monetary policy on Tuesday, April 4 at 04:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of seven major banks regarding the upcoming central bank's decision.

Uncertainty around the Ukraine crisis, minor signs of wage inflation and the May Federal election are some of the key factors that could lead the RBA to maintain its cautious stance.

Scotiabank

“The bank should nevertheless lay the groundwork for at least one hike in the fourth quarter – or even a Q3 start. We project that the RBA will hike this year, but with a large number of hikes already priced in, the RBA would need to at least meet expectations to support the AUD and, ultimately, markets have got ahead of themselves and the unwinding of RBA hike bets should weigh on the AUD through the remainder of the year. Unless the RBA quickly changes its tone from dovish to very hawkish – something that we don’t anticipate – the AUD faces limited tailwinds. A normalization of commodity prices from very elevated levels would be an additional drag over the coming months.”

Westpac

“The cash rate will be held at the record low of 0.1%. The focus will be on any shift in language in the decision statement. Westpac expects the tightening cycle to begin this August. Inflation is now back in the target band and the unemployment rate, at 4.0%, will soon move below 4% for the first time since 1974. However, the RBA has stated that it will not lift rates until inflation is ‘sustainably’ within the target band – which requires a lift in wages growth from current relatively modest levels. We anticipate that by August, with the benefit of additional information on inflation, wages and unemployment, the case will be made for the tightening cycle to commence.”

Standard Chartered

“We currently expect the RBA to start normalising rates in August. At the last meeting in March, the RBA reiterated that it will be patient in hiking rates and said it may take some time before labour cost growth is consistent with inflation being sustainably at target. That said, the RBA’s reference to supply-side inflation appears to have shifted towards its being more persistent than thought versus how strong demand inflation is after supply-side problems are solved. Since the meeting, February labour data pointed to sustained tightness in the labour market. RBA governor speeches also noted that a rate hike this year may be plausible. That said, the governor noted that the RBA is monitoring inflation psychology and domestic labour costs, and noted that wage growth may remain moderate. We expect further subtle shifts in inflation and rate hike views amid current strong growth and rising inflation dynamics.”

Danske Bank

“Despite the global inflationary pressures, we do not yet expect to see changes to their monetary policy.”

TDS

“We expect the RBA to reiterate that it remains 'patient', looking past the Budget handouts. The RBA seems comfortable with the risk of moving too late than too early and noted that it won't respond until there is "evidence of pervasive price pressures". Thus, we like Rec Jun'22 RBA OIS. We retain our call for the first 15bps hike in Aug but now expect another hike in Sep.”

SocGen

“We expect the RBA to hold the cash rate target at 0.10%. The RBA’s rate guidance likely won’t change. The policy statement will probably say that the RBA will not increase the cash rate until actual inflation is sustainably within the 2-3% target range and that it is too early to conclude that this condition has been met. The RBA will likely maintain its upbeat outlook on economic growth and the labour market. It should continue to acknowledge the war in Ukraine as a major source of uncertainty. The key question for the RBA is when the first rate hike will take place. Our base-case scenario points to August, after the release of 2Q22 CPI. We cannot rule out the first hike in May, especially if 1Q22 CPI provides an upside surprise. But we think that the RBA’s usual step-by-step approach reduces the likelihood of ‘hasty’ action.”  

Citibank

“Although any major policy changes are unlikely in this week’s April Policy Board Meeting, it could still hold clues as to when the RBA is considering its first hike (our base case remains August, markets are pricing June). The recent more hawkish tilt implies that the Bank now considers it ‘plausible’ to move rates higher later this year though Governor Lowe is still pushing back against aggressive market pricing which currently suggests that the cash rate could be 1.8% by the end of this year.”