Economists Divided On Rate Rise Before RBA Meet

It's time for Reserve Bank roulette again. People are getting ready for the possibility of a rate rise.

The central bank raised interest rates every month since last May. They only stopped in January and paused for a short time in April. This rise caused trouble for people trying to pay off their mortgages.

People are debating if the RBA will raise the cash rate at Tuesday's meeting. Some think they will, but others don't. A few of the big banks don't think there will be any change. The chances of it happening are around 33%.

Gareth Aird is the head of Australian economics at CBA. He predicted the RBA's surprise rate rise in May, which not many other people did. Aird believes that there is a chance of another hike in June, but it's only about 30%.

The latest economic numbers were not good. They were worse than what people thought. Retail sales did not go up at all in April. And there was a serious problem with building approvals. They dropped a lot and are now at the lowest point in 11 years. He said this.

Aird said that the RBA could consider the increase in consumer prices in April. This is due to how it may impact inflation psychology. However, the data underneath shows that the slowdown is ongoing, which is not a reason for panic. In fact, it's encouraging.

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Philip Lowe, the governor of RBA, will finish his position in September. He said to the Senate estimates last week that the bank will do all it can to control inflation. This may include increasing rates again.

Lowe said that May's budget doesn't add to price pressures, which is different from what some economists believe. Lowe also stated that the budget will reduce inflation in the upcoming financial year. These comments were picked up by the Albanese government.

Investors thought there was a good chance that interest rates would go up to 4.1%. They guessed that there was a 33% chance it would happen today. But, they think there's a 70% chance it will happen by July. And they are sure it will happen in August.

NAB's Alan Oster thinks the rate decision on Tuesday was uncertain. He thinks RBA will wait until Wednesday's national accounts from the Australian Bureau of Statistics to make a decision.

NAB thinks GDP will increase by 0.2% compared to the last three months. This is the weakest growth in a quarter since September 2021 when Covid-19 restrictions affected half of the economy.

NAB predicts RBA to increase cash rate to 4.1% by August. There's a possibility of them going even higher. This is what the briefing note suggests.

Judo Bank's top economist, Warren Hogan, thinks that there will be a rate increase of 0.25% on Tuesday. This will bring the rate to 4.1%. Hogan is very sure of this but thinks it will be a "close call". He also predicts that there will be another rate increase of the same amount in August. Hogan has a good track record, as he accurately predicted a rate increase in May.

Hogan said they need to slow down the economy and it's not slow enough.

Some parts of the economy are facing difficulties, while services are doing well. The Judo index for business activity has increased in May and for the previous month.

The bank said the growth rate was good but slower than the first quarter. Service providers in Australia hired more people to handle the increased demand.

ANZ's recent job ads survey showed a slight increase. However, it has decreased by 8% since September. Even though the number has gone down, it is still considered high according to historical trends.

Despite multiple interest rate increases by the Reserve Bank of Australia, there has been a small rise in job advertisements this May. ANZ Research reports that this demonstrates a strong economy. Job ads are currently down 8% from their peak in September, but are still at a high level.

House prices in big cities are going up. Also, more people are buying houses at auctions. Last week's clearance rate was almost 79%. That's the highest rate since October. CoreLogic shared this information.

The RBA increased its rate by 300 points between May and December 2020. That's an average of 37.5bp per month. This year, they raised it by 75bp, which is less than half the pace of last year. It averages out to 15bp per month so far. Hogan said this.

Australia's interest rate is lower than other countries like New Zealand, the US, the Bank of England, and Bank of Canada.

Hogan said that the job of RBA is not yet done. They need to achieve zero real interest rates after taking out inflation.