Policymakers at the Reserve Bank of Australia (RBA) are expected to step back from further tightening at their June 16 meeting, according to a Reuters poll of economists conducted from June 5 to June 11. The consensus view reflects a cooling domestic economy and the need to evaluate the impact of three successive rate increases implemented since February.
Current policy position
The RBA has lifted the cash rate by 75 basis points since February, taking it to 4.35% and reversing the easing implemented last year. The tightening campaign is intended to curb price pressures that were already present before an energy shock linked in the poll to the U.S.-Israeli war with Iran added to global inflationary forces.
Economic indicators weigh on decision
Monetary policy is beginning to show effects on activity. Gross domestic product growth slowed to 0.3% in the first quarter from 0.9% in the previous quarter, while the labour market has softened with unemployment rising to 4.5% in April, the highest level since November 2021. Against that backdrop, 42 of 45 economists in the Reuters poll expected the RBA to hold the cash rate 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 were 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."
Inflation dynamics
Headline inflation eased to 4.2% in April from Marchs 4.6%, yet it remains above the RBAs 2% to 3% target band. A core inflation measure edged up to 3.4% as higher oil prices fed through the broader economy, a dynamic that has kept inflationary risks on the radar of some forecasters.
Differences in the near-term outlook
There is a split among economists about where rates will sit by the end of the third quarter. A majority, 26 of 44 respondents, expect the cash rate to be 4.35% at the end of September. However, 18 of the economists polled forecast the rate will be at least 4.60% by then, citing ongoing inflationary pressures. The division is similar for the outlook into the fourth quarter.
"There is still some risk they need to do a little bit more," added NABs Nugent. "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 all forecasters agree that policy has peaked. "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 RBAs recent communications, they are very worried inflation expectations could get out of hand."
Financial sector positions
Major Australian banks including ANZ, CBA and NAB have signalled they view the cash rate as having peaked. By contrast, Westpac projects an eventual lift to 4.85%.
This divergence among economists and financial institutions frames the RBAs immediate task: weigh signs that policy is cooling activity against persistent inflationary pressures, some of which are linked to international developments. The June meeting will give the bank a window to pause and collect more data on the path ahead.