What to expect from the RBA meeting in June 2023

While there is a possibility that the Reserve Bank of Australia (RBA) could deliver another interest rate increase at its June 2023 meeting due to stubborn inflation, some major banks are predicting that the next rate hike won’t materialise until later in the year, if at all.

The Australian Bureau of Statistics (ABS) monthly Consumer Price Index (CPI) indicator rose 6.8% in the twelve months to April 2023, representing a 0.5% month-on-month increase in annual inflation from March (6.3%). This jump is a small reversal of a downward trend since headline inflation peaked at 8.4% in December 2022, before falling to 7.4% in January 2023 and to 6.8% in February 2023.

RateCity analysis shows another 0.25 percentage point rise would mean the average borrower with a $500,000 loan before the hikes started in May last year could soon be paying a total of $1,134 more a month. That’s a 49 per cent increase.

RBA 

The Reserve Bank of Australia (RBA) has stuck to its guns on interest rates, reaffirming in the minutes of its previous meeting that it would “do what is required” to bring inflation to the target band of 2% to 3%.

Appearing before a Senate committee, RBA Governor Dr Philip Lowe acknowledged that higher interest rates are unpopular and painful, but also necessary to help bring down inflation.

Additionally, Dr Lowe said that “in a perfect world” other arrangements could be made to help reduce aggregate demand and manage inflation than just raising the cash rate, such as increasing taxes or reducing government spending.

"It would be difficult to do because, with the greatest respect, it's easier for the Reserve Bank Board to take these hard decisions to inflict pain than it would be for the political class to increase taxes."

ANZ

ANZ Research has announced that it would be moving its forecast of the RBA's terminal cash rate to 4.35%, as it no longer saw 4.1% as “sufficient to bring inflation back to the target in reasonable time.” 

While ANZ considers August 2023 to be the most likely month for a cash rate move, driven by the quarterly inflation cycle, a move is also expected in either June or July 2023. As for which month, ANZ considers it a "line ball decision", but given that higher rates are more likely and the tendency of the RBA not to delay, the bank favours a June 2023 hike. 

When the latest monthly CPI data came out in May, ANZ senior economist, Adelaide Timbrell, noted that inflation and other economic indicators could make it possible for the RBA to make a move on the cash rate earlier rather than later:

“The risk around our forecast of a 4.1% cash rate in August has been tilted toward earlier and/or more action from the RBA. Today’s CPI data add to that risk, with inflation, construction work done and credit all consistent with higher interest rates soon.”

CBA

While Commonwealth Bank economists expect that the RBA will leave the cash rate on hold in June 2023, there's still a 30% chance of a 25-point hike this month. 

While the latest CPI data was found to be higher than expected, which could influence inflation psychology and expectations, CBA said that the data does not support another rate hike in June:

“The optics of the annual rate of inflation increasing at a time when the RBA Board wants inflation to drop do not look good.  But the increase in the annual rate masked a softening trend in the data… The bottom line is that inflation continues to decelerate.  But the annual rate in April simply masked the trend.”

While CBA maintains that the cash rate should remain on hold at a peak of 3.85%, “the Board can resume increasing the cash rate in July or August following a pause in June if the economic data makes the case.”

NAB

Following the recent cash rate hike that came as a surprise to many markets, NAB economists returned to a prediction from February 2023 that the cash rate would rise to a peak of 4.1% before the end of this year. This 25-point hike is expected to take place in July 2023, though there’s also a chance the RBA could wait until August 2023, when more quarterly inflation data will be available to them.

That said, there remains the risk that if inflation stays stronger for longer, an additional 25-point rate rise to 4.35% can’t be ruled out.

“As we articulated in February, a cash rate of 4.1% would be clearly in restrictive territory and would have a material impact on household cash flow. However, assessing the restrictiveness of monetary policy in real time is difficult, and it is a real possibility that an even higher cash rate of 4.35% is necessary to balance the risks on inflation. For now, we see a rate peak of 4.1% as most likely, including because of the RBA’s signalled willingness to tolerate a more gradual return to target inflation.”

Westpac

Westpac economist, Bill Evans, said that the May 2023 rate hike from the RBA “came as a major surprise to markets and most commentators, clearly stoking consumer fears of more increases to come.”

“Consumer sentiment is back near the historic lows we have only really seen on a sustained basis in the deep recession of the early 1990s. The entrenched pessimism is clearly reflecting intense pressure on household disposable incomes resulting from high inflation and the sharp rise in interest rates. This signal is apparent in actual activity with a range of spending indicators now pointing to a sharp slowdown.”

Mr Evans expects the RBA will leave rates on hold at its June 2023 meeting while it awaits more information around inflation and the state of the economy. The current cash rate of 3.85% is expected to be the peak, though the risks “remain evenly balanced” when you also consider resilience around labour market conditions and signs of renewed confidence in the housing market.

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.

Compare home loans in Australia