Economy

Not everyone is convinced the RBA will hike rates today

Tue 03 May 22, 11:15am (AEST)
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Key Points

  • Most economists expect to see a 15 basis-point move to 0.25% today
  • Westpac's Bill Evan’s believe last week’s inflation reality check of 5.1% is sufficient evidence to conclude rates will be on the move in May
  • The RBA has typically avoided a rate hike during a federal election

The vast majority of economists expect the Reserve Bank (RBA) to hike for the first time in eleven years at today’s meeting.

But while most see a 15 basis-point move to 0.25%, as do money markets, some zealots expect a first move of a whopping 40 basis points magnitude.

The Australian Retirement Trust’s chief economist Brian Parker expects the central bank to lift rates by 25 basis points at every meeting this year.

However, given that the central bank has no reputation for taking ballsy moves, John Hawkins a senior lecturer at the University of Canberra suspects the RBA’s waiting game may continue for a while yet.

What will also clearly weigh on the minds of the RBA today are the sensitivities around hiking rates during a federal election campaign.

Is the RBA's eye more on future inflation?

With one eye on future inflation, Hawkins thinks the RBA may be more comfortable with the market doing some of the heavy lifting itself.

What the RBA may be to second-guessing, notes the Canberra academic is a likely drop in inflation in the June quarter, with oil prices falling and the budget petrol price relief cutting prices by a further 22 cents a litre.

Hawkins also reminds investors that some supply chain issues, and skilled labour shortages created by the pandemic are expected to ease, with the recent ascent of the A$ helping to contain the price of imports.

“Unless there’s a significant pickup in wage growth, inflation may start to come back down of its own accord, without the need for the Reserve Bank to push up rates,” Hawkins noted.

Time for emergency rates has simply gone

Be that as it may, some economists believe the bigger issue at play is that the time for emergency level interest rates of 0.10% has long since passed us by.

Westpac’s chief economist Bill Evan’s is part of the cohort who believe last week’s inflation reality check of 5.1% is sufficient evidence to conclude rates will be on the move in May.

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Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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