Majors split on RBA rate decision for April

The Commonwealth Bank of Australia (CBA) and Westpac are forecasting a pause at the Reserve Bank of Australia’s (RBA) April meeting today (4 April), leaving the official cash rate at 3.6 per cent, but NAB and ANZ are calling a hike today (4 April).

CBA had previously predicted a 25-bp increase, which would have taken the cash rate to 3.85 per cent — the bank’s projected terminal rate — but now said it’s a “very close call” and is now tipping towards a hike.

“In what we believe is a very close call, we now expect the RBA to leave the cash rate on hold at 3.6 per cent at the April board meeting,” CBA noted in its latest market update. 

“We ascribe a 55 per cent chance to no change and a 45 per cent probability to a 25-bp rate increase to 3.85 per cent — we consider the risk of any other move immaterial.”

CBA acknowledged several of the RBA’s central bank peers have lifted rates in recent weeks despite volatility in global financial markets but said the domestic economy is now “showing sufficient signs of slowing”.

Westpac chief economist Bill Evans also has backed a pause in the tightening cycle — which has seen 10 consecutive rate hikes already — but noted that this won’t mark the end of the cycle altogether.

Instead, the major bank expects a final 25-bp point increase at the May board meeting.

However, National Australia Bank (NAB) continues to forecast a 25-bp rise in April, although it has adjusted its rate peak forecast to 3.85 per cent from a 4.1 per cent peak.

NAB economists suggested it was “increasingly clear that interest rates are nearing their peak, and the April meeting is a lineball decision”.

“The labour market remains very tight, inflation is well above target and the risks on wage growth remain to the upside. However, activity is also slowing as post-COVID-19 momentum fades and the monthly CPI appears to confirm RBA and market expectations that inflation has passed its peak,” NAB chief economist Alan Oster said in an update on Thursday (30 March).

“The key question for the RBA board is whether the current level of interest rates is now sufficiently high to ensure inflation sustainably returns to target in a reasonable time frame. In part, this depends on wage pressures remaining contained and expectations for inflation staying anchored.

“The risk to our forecast is that the board chooses to pause in April, as floated in the minutes, if a strong signal is taken from the monthly CPI indicator.”

ANZ has also said it expects a 25-bp hike today (4 April) but also flagged that the decision “will be finely balanced”.

“Looking at the four data points Governor [Philip] Lowe highlighted as guiding the decision, we see ongoing resilience. But the recent banking sector ructions and ‘long and variable lags’ of monetary policy will be considerations,” ANZ researchers said. 

“The recent banking sector ructions will be a consideration. But following quick action to ring-fence the issues, the US Fed, ECB, BoE and SNB have all raised rates since, signalling that financial stability concerns, while under close watch, are not outweighing inflationary concerns. At least not yet.

“While our central case is for a 25-bp hike in April, the probability of a pause is the highest it’s been in some time. The RBA may take this option to assess the impact of rate hikes so far, given the ‘long and variable’ lags in monetary policy, along with recent global developments. We still see the question as not one of ‘where’ the cash rate peaks at (we still favour 4.1 per cent), but ‘when’.”

Non-major banks are largely backing a rate pause today (4 April), with AMP Bank and ING suggesting that a pause would be more likely given stronger-than-expected economic data.

In fact, the markets are pricing in no chance of a rate rise at this afternoon’s (4 April) RBA meeting, although 11 out of 30 economists still expect a 25-bp (or 0.25 per cent) hike, taking the cash rate to 3.85 per cent.

[Related: Rate pause expectations strengthen as inflation falls]