What to expect from the RBA meeting in July 2023

Following the June 2023 meeting of the Reserve Bank of Australia (RBA), where the cash rate rose by 25 points to 4.10%, economists from Australia’s biggest banks found themselves having to revise their interest rate predictions for the rest of the year. Several of these economists are now expecting rate hikes in both July and August 2023.

That said, there is an increasing chance that the RBA could choose to pause the cash rate hiking cycle in July 2023, due to recently released inflation figures. The latest monthly Consumer Price Index (CPI) report from the Australian Bureau of Statistics (ABS) was found to have fallen to 5.6% in May 2023, down from 6.8% the month prior. This could indicate that the prior rate hikes are having their intended effect on inflation, reducing the need to raise rates even higher.

Meanwhile, some of the big banks are reportedly slashing the floor rate in their stress tests for refinancers to help more Australians break out of mortgage prison. 

RBA

The minutes of the June 2023 RBA meeting revealed that the arguments between raising the cash rate and leaving it unchanged were “finely balanced”.

Considerations for leaving the cash rate unchanged that month included that continuing to hike the cash rate after over a year of regular increases could risk slowing the economy more sharply than expected.

“Members noted that consumption growth was already quite weak, especially in per capita terms. Real disposable incomes were falling, especially for home loan borrowers, and many renters were experiencing difficult financial conditions.”

Other factors in favour of a cash rate pause included the lagging transmission of previous rate rises, the large number of fixed rate loans set to expire in the coming months, and the possibility that “staff forecasts had overestimated wages growth for a prolonged period prior to the pandemic and that productivity could prove stronger than expected.” 

The board agreed to continue to monitor trends in household spending closely and consider the implications for the inflation outlook, as well as developments in the global economy and the domestic labour market. The next quarterly CPI report from the ABS is due out in late July 2023, which could influence the RBA’s August 2023 decision.

ANZ

ANZ is forecasting 25-point rate hikes in both July and August 2023, bringing the cash rate to a peak of 4.60%.

While the recent fall in monthly inflation is understood to have increased the risk of a pause from the RBA, which could put off the cash rate peak, ANZ senior economist Adelaide Timbrell found the underlying measures less encouraging:

“The encouraging fall in the monthly CPI indicator hides a lot of stickiness in underlying inflation. The biggest monthly falls were in fuel and domestic holidays, which are among the most volatile series in the data.”

Additionally, according to ANZ Research, “Strong jobs momentum may also sway the RBA’s decision towards a rise.”

Commonwealth Bank

Commonwealth Bank believes that the RBA will have another finely balanced decision on their hands in July 2023, though it expects the cash rate will remain on hold at 4.10%.

However, it was also noted that the risks of a rate hike in July are not zero, given that rents and market services were still showing signs of inflation accelerating or remaining elevated.

“Inflation is heading in the right direction, albeit it remains too high and concerns around inflation expectations and indexation remain in place.  The RBA is attempting to walk a fine line between bringing inflation down and holding onto gains in the labour market.”

Regardless of what happens in July, Commonwealth Bank economists predict that the RBA will hike rates in August 2023, following the release of the quarterly CPI results in late July 2023, and the RBA refreshing its own forecasts when preparing its August 2023 Statement on Monetary Policy.

NAB

Following the June 2023 rate hike, NAB adjusted its forecasts. While it also predicts the cash rate will reach 4.6%, the timing is less certain, with July and August hikes being “pencilled in”.

“The RBA’s bias argues towards a hike in July, though their April instinct to pause in anticipation of a full forecast update and full quarterly CPI before delivering a hike in May is a precedent that makes July less certain.”

NAB is still expecting the RBA to start cutting interest rates back towards neutral in 2024 in response to slowing growth, rising unemployment, and inflation returning to target.

Westpac

Westpac chief economist, Bill Evans, has said that recent employment and housing data signalled that the RBA would likely hike the cash rate in July 2023, and that there was a “considerable risk” of a second hike in August 2023. 

This was in part due to the RBA governor’s statement following the June 2023 meeting saying that a change in the Board’s reaction function to be “more urgent around the need to contain inflation risks.”

Mr Evans also said that the extended tightening cycles from the RBA and other central banks around the world could lead to more aggressive easing cycles, beginning in 2024.

“The knock-on effect of these hikes is that it’s likely to push back the start of interest rate cuts. We’re now pencilling in May 2024 for the first cut, pushed back from our previous expectation for February.”

To help you stay up to date with the latest changes to the national cash rate, as well as any adjustments to interest rates for home loans and savings accounts that follow, be sure to visit the RateCity RBA Rate Tracker hub.

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