© Reuters. A man smokes next to the Reserve Bank of Australia headquarters in central Sydney, Australia February 6, 2018. REUTERS/Daniel Munoz
(This story has been corrected to rectify the description of Reuters poll consensus in paragraph 11)
By Devayani Sathyan
BENGALURU (Reuters) – The Reserve Bank of Australia will likely raise its interest rate by 25 basis points to 4.35% on Tuesday to tame stubbornly high inflation, although a Reuters poll of economists showed the decision to hike or hold was on a knife’s edge.
While the latest monthly measure of consumer prices showed inflation slowed to 5.6% in May from 6.8% in April, it was still well above the RBA’s 2-3% target range, suggesting more tightening may be required.
Since a surprise pause in April and consequent hikes in May and June, economists in Reuters polls have been mostly divided in recent months over the RBA’s next move.
Indeed, the June 28-30 survey showed there was a near split among economists with 16 of 31 expecting the central bank to hike its official cash rate to 4.35% at the July 4 meeting. The remaining 15 predicted a pause.
“While there is a higher risk of a pause in July … the strong employment growth in May and in previous months, as well as the lack of moderation in inflation, the balance is still such that the Bank is more likely to increase the cash rate in July than to pause,” said Adelaide Timbrell, senior economist at ANZ.
“We don’t think a pause in July will reduce the total number of cash rate hikes the Reserve Bank needs to do. It will only mean the path to when we believe the peak cash rate will be at 4.60% will be slightly slower.”
Among major local banks, ANZ, NAB and Westpac expected a hike on Tuesday while CBA predicted no move.
Although economists were divided over the RBA’s move at the upcoming meeting, an overwhelming majority, 25 of 29, expected the central bank to hike once more in August to 4.60%.
“We do think the current level of policy rates isn’t high enough given the data backdrop and the size of the disinflation task for the RBA,” said Taylor Nugent, economist at NAB.
The prediction of a hike from the RBA was in line with other major global central banks who are expected to tighten policy more than previously expected as inflation remains sticky.[ECILT/GB][ECILT/US][ECILT/EU]
Just over half of economists, 16 of 30, predicted rates to peak at 4.60% or higher by end-September. Of the remaining, 13 saw rates at 4.35% and one expected no change from 4.10%.
That was 25 basis points higher than the peak expected in a poll taken after the June meeting. Median forecasts showed rates would remain at 4.60% until end-2023.
When asked where core inflation will be in Australia by year-end, 11 of 16 said slightly lower. Of the remaining, four said significantly lower and one said around current levels.
Inflation was forecast to average 5.7% and 3.2% this year and next, respectively. Australia’s economic growth was predicted to average 1.5% this year and 1.4% in 2024.
(For other stories from the Reuters global long-term economic outlook polls package:)
This story originally appeared on Investing
