VIEW: CBA Now Look For RBA To Hold Rates Steady Next Week

CBA write “in what we believe is a very close call, we now expect the RBA to leave the cash rate on hold at 3.60% at the April Board meeting.”

• “We ascribe a 55% chance to no change and a 45% probability to a 25bp rate increase to 3.85% (we consider the risk of any other move immaterial).”
• “The actions of many other central banks globally over the past two weeks lend weight to the RBA continuing to tighten policy despite some concerns within pockets of the global banking system (outside of Australia).”
• “But the domestic economy is now showing sufficient signs of slowing and we expect the RBA Board will judge that a pause in the tightening cycle is the appropriate move in April.”
• “The Board can resume increasing the cash rate in May following a pause in April if the economic data makes the case.”
• “The February monthly CPI indicator confirmed that inflation peaked in Q4 22 and looks to be coming down a touch quicker than the RBA’s implied forecast profile. In addition wages growth remains consistent with the inflation target.”
• “Monetary policy works with a lag and only ~45% of the increase in the cash rate to date had passed through to scheduled mortgage repayments at the end of 2022.”
• "A pause therefore in April coupled with a hiking bias makes a lot of sense. And that is now our base case. If the RBA delivers on this outcome we will retain our call that the terminal rate will be 3.85% in this cycle. But we would then state the risk to our view is that the hiking cycle is over and the next move is down."