Australians face an increase in borrowing costs with the Reserve Bank of Australia (RBA) expected to lift official interest rates tomorrow.
In fact, the central bank is tipped to increase them twice in three months, with another hike expected in June.
A rising number of economists have forecast a 25 basis point lift in the official cash rate to 4.1% when the RBA announces its decision at 2.30 pm AEDT (3.30 am GMT) on Tuesday.
The chances of such an increase were rated at 71% by the RBA Rate Tracker on 13 March, having risen from no chance on 2 March, which was prior to the outbreak of the United States and Israeli war with Iran and the consequent increase in crude oil prices.
ANZ said that although it was factoring in a rise tomorrow, the decision would not be as clear-cut as in February when the central bank lifted rates by 25 basis points.
“Beyond the March meeting, we still expect an additional 25 (basis point) hike in May,” the bank said in its Australian Macro Weekly email.
“We then expect a pause while the RBA assesses whether the increase in the cash rate is sufficient to contain the inflation risks.”
A similar note was struck by Goldman Sachs, which said it had been rating a hike at the RBA’s March meeting as a 30-40% probability since the bank’s “strikingly hawkish pivot” in February.
But the investment bank now rated the probability at 60%.
“A March hike is far from a done deal, but several recent developments suggest it is now the most likely scenario,” Goldman Sachs said in its ANZ Views note.
Developments suggesting it was the most likely scenario were tentative signs of a de-escalation in the Middle East, a surge in inflation expectations and oil prices and unscheduled hawkish remarks by RBA Deputy Governor Hauser.
Hauser said the risk of further oil price increases was “not a helpful development” for monetary policy discussions, given inflation was running above the RBA’s target, but that the “uncertainty over developments in Iran is extremely high”.
Also, a third consecutive rate hike in May was seen as a material risk, with the RBA then expected to keep rates on hold through 2026
Economists from the Commonwealth Bank of Australia, Westpac and National Australia Bank also expect a rate rise tomorrow.
“The debate at the March meeting will be a close one,” Commonwealth Bank Head of Australian economics Belinda Allen said in a news article.
“But with inflation still above target and the economy running above trend, we expect the Board will choose to lift rates again and follow up with another move in May.”
Westpac revised its view about the RBA’s monetary policy with 25 basis point hikes now expected in March and May despite the fact that the large effect of higher oil prices on headline inflation was temporary.
“The RBA Monetary Policy Board will nevertheless feel compelled to react, especially given the hit to confidence and financial markets has so far not been severe,” the bank wrote in this article.
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