A near-unanimous expectation of a hold leaves limited scope for a market surprise on Tuesday, with attention shifting to the RBA’s forward guidance and how it characterises Middle East-driven inflation risks. The split over the September outlook, with a notable minority still pricing further hikes, suggests AUD and rates markets remain sensitive to incoming inflation and labour data, particularly given Westpac’s outlier call for a cash rate as high as 4.85%.

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A Reuters poll found 42 of 45 economists expect the RBA to hold its cash rate at 4.35% on June 16, pausing after three hikes, though 18 of 44 still see rates at 4.60% or higher by end-September.

Summary:

Source: Reuters poll, June 5-11

• 42 of 45 economists expect the RBA to hold its cash rate at 4.35% on June 16
• The RBA has raised the cash rate by 75bps since February, fully reversing last year’s easing
• GDP growth slowed to 0.3% in Q1 from 0.9% prior, while unemployment rose to 4.5% in April, the highest since November 2021
• Headline inflation eased to 4.2% in April from 4.6% in March, still above the RBA’s 2-3% target band
• Core inflation rose to 3.4% as higher oil prices fed through the economy
• 26 of 44 economists see the cash rate at 4.35% at end-September, while 18 expect 4.60% or higher
• NAB’s Taylor Nugent said the chance of a June move is very low, while AMP’s My Bui said the RBA still has further to hike

The Reserve Bank of Australia is expected to pause its tightening cycle at its June 16 meeting, according to a Reuters poll, with 42 of 45 economists forecasting the cash rate will be held at 4.35%.

The pause comes after the RBA raised rates by a cumulative 75 basis points since February, fully reversing last year’s easing, in an effort to contain inflation pressures that were building even before the energy shock triggered by the US-Israeli conflict with Iran. Tighter policy has already weighed on activity, with GDP growth slowing to 0.3% in the first quarter from 0.9% previously, while unemployment climbed to 4.5% in April, its highest level since November 2021.

Headline inflation eased to 4.2% in April from 4.6% in March but remains above the RBA’s 2-3% target band, while core inflation ticked up to 3.4% as higher oil prices flowed through the broader economy.

Looking further ahead, economists are split. While 26 of 44 see the cash rate still at 4.35% by end-September, 18 expect it to reach at least 4.60% given lingering inflation risks. NAB’s Taylor Nugent said the RBA has likely done enough on domestic inflation and can now assess risks from the Middle East, while AMP’s My Bui argued further hikes are still needed given persistent price pressures. Westpac is among the more hawkish, forecasting a peak of 4.85%.