May 2023 cash rate preview: CommBank calls for a hike, other majors predict a pause

Economists from the four biggest banks are still calling different shots as to what the Reserve Bank of Australia (RBA) would eventually do with the cash rate for May.

In April, the RBA decided to pause the uptrend in the monetary policy, holding the cash rate at 3.60%.

The biggest issue on hand for the May RBA meeting is the latest inflation reading, which declined to 7% annually over the March quarter.

Meanwhile, monthly inflation also fell to 6.3%, continuing the downwards trajectory that started in January.

Economists from ANZ, NAB, and Westpac are expecting the RBA to hold for May while CommBank is forecasting a 25bps hike.

For context, the big four were also split in their forecast for the April cash rate, with CommBank and Westpac eventually getting the right prediction.

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Photos by April Benjamin.

Here are the latest forecasts by the big four:

ANZ: Hold

ANZ senior economist Adelaide Timbrell said the trimmed mean inflation and the monthly CPI indicator were both lower than expected, which supports further pause in the cash rate for May.

“Looking further ahead, though, persistently strong services inflation, reflecting excess demand in the economy, suggests that more RBA tightening will be needed in coming months,” she said.

CommBank: 25bps hike

CommBank head of Australian economics Gareth Aird said it is going to be a very close call for the RBA in May, but odds are still leaning toa 25bps rate hike.

“The Q123 headline CPI came in a little below the RBA’s forecast from the February statement on monetary policy. But the monthly CPI indicator had already suggested headline inflation in Q123 would print below the RBA’s February forecast,” he said.

“The RBA Board took this into consideration when they left the cash rate on hold in April but reiterated their hiking bias.”

Mr Aird said it is crucial to consider how the RBA will frame the arguments in favour of increasing the cash rate.

NAB: Hold

NAB currency strategist Rodrigo Catril said that the recent data on inflation widely held expectations that it has already peaked late last year.

“More importantly for markets the softer than expected outcome dowsed the possibility of the RBA hiking next week, extending the pause in the tightening cycle,” he said.

“That being said, with inflation remaining uncomfortably high, the possibility of some further tightening later in the year remains elevated.”

Westpac: Hold

Westpac Group chief economist Bill Evans said the inflation data changes his view on the RBA’s next move.

“We have always argued that May would likely be the peak of the tightening cycle so we are now lowering our forecast cash rate peak from 3.85% to 3.6%,” he said.

“Given the uncertainty around the current outlook and a need to contain inflation expectations, the RBA is almost certain to maintain its clear tightening bias,” he said.

“However, as we move through the remainder of 2023 the credibility of that bias is likely to fade.