The Reserve Bank of Australia’s (RBA) monetary policy board has lifted the cash rate by 25 bps to 4.1 per cent.
As part of the ongoing fight to curb inflation, the central bank has lifted rates by a cumulative 400 bps since commencing the tightening cycle in May 2022.
The June decision comes amid a setback, with the latest monthly CPI data reporting an annualised increase of 6.8 per cent in April — exceeding market expectations of a 6.4 per cent rise and marking the first monthly increase in 2023.
Economists were split ahead of the RBA’s June board meeting, however, a growing number of observers, including AMP Capital chief economist Shane Oliver, revised their projections of a hold to a hike in the wake of the stronger-than-expected CPI result and Friday’s decision by the Fair Work Commission to increase the minimum wage by 5.75 per cent.
“A rebound in Australian inflation and the latest minimum and award wage increases unfortunately now make a further RBA rate hike look likely and so we are allowing for another 0.25 per cent increase in the cash rate on Tuesday taking it to 4.1 per cent,” he said ahead of this afternoon’s board meeting.
However, the likes of the Commonwealth Bank and Westpac, expected the RBA to keep rates on hold.
Westpac acknowledged a hike would be “seriously considered” by the RBA but noted broader evidence of an economic slowdown.
This includes the latest labour market data, which reported a surprise increase to the unemployment rate, from 3.5 per cent to 3.7 per cent.
As such, Westpac said the RBA would hold the cash rate to assess upcoming indicators, including national accounts data, before actioning further monetary policy adjustments.
“With board meetings every month and given the rapid increase in rates since May last year waiting for the national accounts report seems to be the most prudent approach,” the bank noted.
“This report will also provide important updates on other areas of concern for the board, including the savings rate, productivity, labour costs and inflation.”
Westpac added it fears the RBA has not fully considered the impact of its cumulative rate hikes on mortgage customers, noting as at March, the average mortgage rate lifted just 225 bps since the tightening cycle commenced, compared to a 325 bps increase to the cash rate over the same period.
“We suspect the board is still not recognising the full extent of the impact of rate tightening to date,” Westpac stated.
“It discusses the lagged effect of the rate hikes since May last year but does not set out just how much of this is yet to come through.”
ANZ, on the other hand, backed a June rate increase earlier this week, while upping the terminal cash rate to 4.35 per cent from an earlier predicted 4.1 per cent.
I think we can safely assume that no one really has any clue.