Overview

• On balance we now expect the RBA to hold the cash rate at 3.6%, meaning we are now at the peak cash rate in this cycle. We expect the RBA to remain on hold until the first half of 2024 before the cash rate is cut back to 3.1%.
• The RBA justified the “pause” at 3.6% in the month on the need for more time to assess the ongoing impact of previous rate rises and the evolution of the outlook for the domestic and global economies. In our view, waiting for more than a few months would see the RBA overrun by slowing consumption data and a deteriorating labour market outlook meaning the RBA will remain on hold as inflation moderates.
• Nonetheless, a rate rise in May or June remains a real possibility. The RBA is now very data dependent, and the key risk to our view in the near term is that the RBA reads inflation or wage growth as sufficient to do more before the full impact of rates fully flows through – which would see a slightly higher peak of 3.85%. Which is where we previously expected the peak to be (and to an extent where we think it should be).
• Further out, the key risks are more balanced. To the upside, a stronger wage response and stickier domestic inflation could push the RBA higher – though this scenario would likely involve more than just small tweaks to the cash rate. To the downside, a more significant deterioration in global growth due to a tightening in financial conditions could see a faster moderation in inflation.

For further details, please see the NAB Monetary Policy Update (5 April 2023)