Will they or won't they? Here's what the experts say about rates increasing

The Reserve Bank of Australia (RBA) is meeting to decide what to do about the national cash rate. The question on everyone’s mind is whether the RBA board will stick to their guns and keep rates on hold this month, or if runaway inflation will force them towards an early rate hike.

The original plan 

For a long time the RBA intended to keep the cash rate target steady at 0.1 per cent until at least 2024. In its past statements on monetary policy, the RBA always said that it was “prepared to be patient” until the conditions were just right for a rate rise, with sustainable levels of inflation and wage growth.

This changed in the April 2022 RBA meeting, when the board kept the cash rate on hold, but dropped the message of patience. With the Australian Bureau of Statistics (ABS) releasing figures showing inflation at record highs, some economists began theorising that the RBA would have to accelerate its plans. While there is still more official data to be released by the ABS, such as wage growth in mid-May and the national accounts at the start of June, the inflation figures alone could be enough for the RBA to consider making a move.

The big four banks

Economists from three of the big four banks are of the opinion that the RBA will raise the cash rate.

The only holdout is the Commonwealth Bank, which is forecasting that rates may not start rising until after the election: 

• CBA: hikes to start in June. Cash rate to reach 1.25% by February 2023.
• Westpac: hikes to start in May. Cash rate to reach 2.00% by May 2023.
• NAB: hikes to start in May. Cash rate to reach 2.50% by August 2024.
• ANZ: hikes to start in May and reach 2.25% over the next 12 months.

How much would the cash rate rise?

Opinions are also divided on whether the RBA would opt for a relatively small rate rise of 15 basis points, bringing the cash rate to 0.25% or a bigger hike of 40 basis points, bringing the cash rate to 0.50%.

According to a poll conducted by Reuters, half of 32 economists forecast a rise in the cash rate to 0.25% at the May meeting, while four predict a 40 basis points increase to 0.50%. The remaining 12 respondents expected no change.

Looking beyond May, 23 of the 32 economists forecast the RBA would raise the cash rate to 0.50% in June, while four forecast it would move the rate up to 0.75% or higher by then.

According to RateCity research, if the RBA hikes by 0.15 percentage points in May and 0.25 percentage points in June, someone with a $500,000 mortgage will see their repayments rise by $39 next month and by June they will be paying $104 more a month than they are today.

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