The Reserve Bank of Australia (RBA) is tipped to hold interest rates today, but experts warn the news will be a short-lived reprieve for households.
All the big four banks expect the monetary policy board to keep the interest rate steady at 4.35 per cent when it hands down its decision at 2.30pm AEST following three consecutive hikes this year.
Reserve Bank of Australia Governor Michele Bullock. Louie Douvis
CreditorWatch chief economist Ivan Colhoun said positive signs like the US-Iran peace deal and a softening housing market driven by the government’s proposed tax changes would contribute to the RBA’s decision.
But he warned against “premature” thoughts of financial easing due to the Fair Work Commission’s decision to raise the minimum wage and the low rate of unemployment.
“Businesses and consumers alike will welcome the near-term reprieve from both interest rate increases and high fuel prices, though many businesses will still have to cope with additional pressure from an irresponsibly large minimum wage increase in the circumstances, particularly retail and hospitality,” he said.
“This will complicate the RBA’s task of reducing inflation to target.”
Colhoun has forecast future hikes due to inflation related to the AI investment boom and data centre expansion.
“My base case remains of a long, slow tightening cycle driven by inflationary pressures related to the AI investment boom and associated data centre rollout, which is causing strong demand for semi-conductors, water, electricity and copper,” he said.
Shoppers at Pitt Street Mall in Sydney. Louise Kennerley
Inflation remains above the 2-3 per cent target and most recently rose to 3.4 per cent, while unemployment jumped to 4.5 per cent.
Despite the figures, the economy still grew in the last quarter, albeit modestly, by 0.3 per cent.
RBA Governor Michele Bullock told a Senate inquiry earlier this month she expects the economy to continue to grow under the worst scenarios of a prolonged war in Iran and rising inflation due to investment in areas like data centres and the positive effects of this year’s rate hikes on the economy.
“Investment has been a bright spot recently, and growth is expected to continue in sectors of the economy with strong structural tailwinds, such as software, data centres and renewable energy,” she said at the time.
Commonwealth Bank, NAB and ANZ expect rates to remain unchanged for the rest of the year.
Westpac has deviated with an expectation of two more hikes due to higher fuel costs and the increase in the minimum wage.
“If we are right about the inflation profile from here, the RBA will be surprised on the upside,” Westpac economists Luci Ellis and Neha Sharma said on Friday.
“We therefore retain our view that further rate hikes will occur in the following meetings (August and September).
“This is consistent with the RBA’s priority to get inflation down.”
Canstar data insights director Sally Tindall said the divide in opinion showed the uncertainty in the economic outlook.
“Inflation is still well above the RBA’s target band and global tensions are still elevated, keeping the board firmly in wait-and-see mode,” she said.