Gareth Aird, head of Australian economics at CBA, thinks the RBA will wait until June:
Key Points:
- The upcoming RBA May Board meeting is ‘live’.
- The RBA Board will discuss the case to raise the cash rate given the red hot Q1 22 CPI. A decision will also be made on reinvestment of the proceeds of maturing bonds.
- We expect the RBA to leave the cash rate target on hold, but recognise it’s a close call between on hold and a hike.
- We assign a 60% probability to the cash rate target left unchanged at the May Board meeting; a 30% probability to a 15bp increase in the cash rate target to 0.25%; and a 10% probability to a 40bp increase in the cash rate target to 0.50%.
- We expect the RBA to shift to an explicit hiking bias, which will set the scene for a June rate hike.
- We expect the RBA to announce that it will not reinvest the proceeds of maturing bonds (i.e. it will embark on quantitative tightening).
- The RBA will publish their full suite of updated economic forecasts in the May 2022 Statement on Monetary Policy (SMP) on Friday.
- We expect the RBA to significantly upwardly revise their near term profile for underlying and headline inflation and more modestly downwardly revise their profile for the unemployment rate (this may result in a small upward revision to their forecast profile for wages growth in 2023).
Overview
The coming week is a huge one for Australian financial market participants. The RBA May Board meeting on Tuesday comes in the wake of the incredibly strong Q1 22 CPI.
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