On February 10, economists at TD Securities expected the Reserve Bank of Australia to pause rate hikes at its April meeting, but a rate hike in May is highly likely. The RBA’s latest economic forecasts did not deviate too much from market expectations, with inflation and wages forecasts revised upwards and GDP and unemployment forecasts barely changed.
The RBA’s forecast is based on the official cash rate (OCR) peaking at 3.75% in the second half of this year, with the risk that it could be reached earlier, or even 4% (higher than the RBA’s forecast). The Reserve Bank of Australia has noticed that the effectiveness of monetary policy is lagging behind, and is also keenly aware of the upside risks to wages and inflation. We expect the RBA to raise rates in March, pause in April, followed by a hike in May.
