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Banks forecast pause in April

by Adrian Suljanovic8 minute read

The major banks have weighed in with their predictions on the Reserve Bank’s cash rate decision for April.

The Commonwealth Bank of Australia (CBA) and Westpac are forecasting a pause at the Reserve Bank of Australia’s (RBA) April meeting this week, leaving the official cash rate at 3.6 per cent.

However, National Australia Bank (NAB) continues to forecast a 25-bp rise in April in its monetary policy update released on 30 March 2023, although it has adjusted its rate peak forecast to 3.85 per cent from a 4.1 per cent peak. ANZ has also said it expects a hike on Tuesday (4 April).

CBA had previously predicted a 25-bp increase, which would have taken the cash rate to 3.85 per cent — the bank’s projected terminal rate. 

“In what we believe is a very close call, we now expect the RBA to leave the cash rate on hold at 3.6 per cent at the April board meeting,” CBA noted in its latest market update. 

“We ascribe a 55 per cent chance to no change and a 45 per cent probability to a 25-bp rate increase to 3.85 per cent — we consider the risk of any other move immaterial.”

CBA acknowledged several of the RBA’s central bank peers have lifted rates in recent weeks despite volatility in global financial markets but said the domestic economy is now “showing sufficient signs of slowing”.

Westpac chief economist Bill Evans noted that it was unlikely that the move to pause will bring the end of the tightening cycle, as the major bank still expects a final 25-bp point increase at the May board meeting.

Mr Evans noted a statement from the minutes from the March board meeting: “Members agreed to reconsider the case for a pause at the following meeting, recognising that pausing would allow additional time to assess the outlook for the economy.

“Signalling aspects of the decision process at the upcoming meeting is something I have not seen in previous Board Minutes. This approach indicates that there is arguably a preference for pausing.”

NAB stated in its update: “It has become increasingly clear that interest rates are nearing their peak, and the April meeting is a line-ball decision.

“The labour market remains very tight, inflation is well above target and the risks on wage growth remain to the upside.

“However, activity is also slowing as post-COVID-19 momentum fades and the monthly CPI appears to confirm RBA and market expectations that inflation has passed its peak.”

[RELATED: Westpac downgrades cash rate forecast]

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