Little Change Expected But Hawkish RBA Possible

The RBA is widely expected to leave rates at 4.35% when it announces its decision later today (1430 AEST). We expect it to acknowledge the higher-than-expected Q1 CPI but maintain its neutral stance while still “not ruling anything in or out” (see MNI RBA Preview). Given the slowdown in disinflation there are risks that the Board could sound more hawkish, especially as there are also updated staff forecasts.

• A return to “a further increase in interest rates cannot be ruled out” from the February statement would definitely be a hawkish development but we see this as unlikely as the phrase was only removed at the last meeting in March.
• We think the risk is that the RBA sounds more wary about inflation returning “sustainably” to target within the “reasonable timeframe” and may strengthen the “some time yet” phrase. It would also be hawkish if risks to inflation are now skewed to the upside rather than being “balanced”.
• The RBA is likely to continue to sound concerned regarding services inflation and its “more gradual” moderation.
• We expect near term upward revisions to inflation given the Q1 data. In February’s projections, Q4 2025 is the first forecast within the band and Q2 2026 the mid-point, which is already at the edge of the RBA’s “reasonable timeframe”. If Q4 2025 and Q2 2026 are revised higher then that is also likely to be interpreted as hawkish.
• While a dovish surprise seems less likely, it remains possible if the Q1 CPI is downplayed or blamed on factors outside the RBA’s influence, and also if consumption/growth worries are escalated.