By Rahul Trivedi
BENGALURU, June 12 (Reuters) – The Reserve Bank of Australia will pause its tightening cycle on June 16, according to a Reuters poll of economists as a cooling economy gives policymakers room to assess the impact of three consecutive rate hikes, even as inflation remains elevated from the U.S.-Israeli war with Iran.
The RBA has raised the cash rate by 75 basis points since February to 4.35%, fully reversing last year’s easing, as it tries to contain price pressures already building before the war-driven energy shock hit the global economy.
Tighter monetary policy is already showing its effects on economic activity. Gross domestic product growth slowed to 0.3% in the first quarter from 0.9% the previous quarter, while unemployment rose to 4.5% in April, its highest since November 2021.
Against that backdrop, 42 of 45 economists polled from June 5 to June 11 said they expected the RBA to leave its key rate unchanged at 4.35% on Tuesday.
“The chance of a move at the June meeting is very low,” said Taylor Nugent, senior economist at NAB.
“The RBA has now recalibrated policy and we’re seeing evidence it was enough to get on top of domestically driven inflation pressures. That means the RBA can sit and hold from here while it assesses risks to inflation and growth coming out of the conflict in the Middle East.”
Headline inflation eased to 4.2% in April from March’s 4.6% but has remained above the RBA’s 2% to 3% target range for nearly a year. The core measure edged up to 3.4% as higher oil prices filtered through the broader economy.
A majority of economists, 26 of 44, expected the cash rate to be 4.35% at the end of September. However, 18 of the economists polled expected it to be at least 4.60% by then because of the inflationary pressures. The split in the rates outlook was broadly similar for Q4.
“There is still some risk they need to do a little bit more,” NAB’s Nugent added. “But we expect the data flow over the next few months to come in a way that suggests the RBA has done enough and we expect concerns around inflation to fade.”
Not everyone agrees.
“The RBA still has to hike further,” said AMP Economist My Bui. “Markets have cut back a lot on pricing but it seems to us the pressures are still there. And right now, if you look at the RBA’s recent communications, they are very worried inflation expectations could get out of hand.”
Major Australian banks, including ANZ, CBA and NAB said the cash rate has peaked while Westpac forecasts a lift to 4.85%.
(Other stories from Reuters global economic poll)
(Reporting by Rahul Trivedi; Polling by Pulkit Khanna and Pranoy Krishna; Editing by Kate Mayberry)
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