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Will the RBA deliver one final rate hike in June?

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Australia’s top banks have outlined two main scenarios for the future of interest rates.

The Reserve Bank of Australia (RBA) is expected to announce one final interest rate hike of 25 basis points (bp) by August, according to the latest forecasts from ANZ and NAB.

This would take the cash rate to 4.1 per cent, marking the first time in over 11 years that interest rates have sat above 4 per cent.

ANZ suggested that the minutes of the RBA’s latest board meeting published on Tuesday appeared to be “on the hawkish side”, even though the central bank indicated that arguments were “finely balanced” both for and against a rate hike in May.


According to ANZ head of Australian economics Adam Boyton, the upside risks to inflation and price setting behaviour, on-going tightness in the labour market, and weakness in productivity outlined in the meeting minutes are all concerns that may linger for some time.

The RBA said that its board members had agreed that “further increases in interest rates may still be required”, but that this would depend on “how the economy and inflation evolve”.

While ANZ currently expects one final hike in August, Mr Boyton said that the use of the plural “increases” raises the prospect that rates may lift higher or earlier than it expects.

“We see the risks around our expectation of one final 25 bp rate hike in August being that the RBA hikes more and/or sooner than we anticipate. Easing remains some considerable time off,” he said.

After reviewing the meeting minutes released on Tuesday, NAB maintained its forecast of a potential increase in the cash rate to 4.1 per cent.

“Key according to these minutes is whether there is evidence that productivity will pick up to ensure the wages growth forecasts contained in the May statement on monetary policy are consistent with the RBA’s forecasts," said NAB head of market economics Tapas Strickland.

The bank has pencilled in a 25 bp hike for July, assessing that is a possibility it could hold until August. NAB also maintained that, in its view, the cash rate could move even higher, with an increase to 4.35 per cent previously assessed as being a “real possibility”.

Prospects of a hold

While acknowledging the risks of more rate hikes in the future, both the Commonwealth Bank (CBA) and Westpac currently believe the RBA will hold rates over the coming months.

According to CBA head of Australian economics Gareth Aird, the RBA’s next board meeting in June is not considered to be “live”.

“However, there is a risk that broad based strength in the upcoming data, particularly an upside surprise on the Q1 23 wage price index and labour force survey shifts the June board meeting to ‘live’,” he said.

The wage price index came in slightly below expectations on Wednesday, with a quarterly rise of 0.8 per cent against consensus forecasts for a 0.9 per cent rise. Meanwhile, the Australian Bureau of Statistics (ABS) is due to release its monthly labour force data on Thursday.

Mr Aird noted that CBA’s central scenario puts the current 3.85 per cent as the peak in the cash rate, but with the near term risk of another hike.

“Another rate increase would require the economic data, particularly around inflation, GDP, the unemployment rate and wages/unit labour costs, to come in stronger than the RBA’s updated forecasts,” he said.

“Put another way, we do not think the RBA will lift the cash rate again if the economic data prints in line or weaker than their forecasts.”

Westpac has maintained that the RBA will pause at its June meeting. However, chief economist Bill Evans has warned that the case for further near-term interest rate increases could not be dismissed.

“The concerns the board has around the risks to its inflation target are understandable but so are the signals around the sharp slowdown in spending and the likely feedback this will have on inflation and labour markets,” he said.

“As the board has outlined, the decision in May was ‘finely balanced’, therefore, given the relentless frequency of board meetings, the case for a pause in June is respectable.”

Mr Evans argued that, unless the latest wages and labour market data delivered a shock to the RBA, the next “live” meeting should be in August.

“As was the case in May, the arguments in August will again be ‘finely balanced’ although our forecasts point to an ‘on hold’ decision,” he concluded.

Will the RBA deliver one final rate hike in June?

Australia’s top banks have outlined two main scenarios for the future of interest rates.

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Jon Bragg

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.

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