RBA to raise rates to 4.35% on July 4 but decision on a knife edge

The Reserve Bank of Australia will likely raise its interest rate by 25 basis points to 4.35% on Tuesday to tame stubbornly high inflation, although a Reuters poll of economists showed the decision to hike or hold was on a knife’s edge.

While the latest monthly measure of consumer prices showed inflation slowed to 5.6% in May from 6.8% in April, it was still well above the RBA’s 2-3% target range, suggesting more tightening may be required.

Since a surprise pause in April and consequent hikes in May and June, economists in Reuters polls have been mostly divided in recent months over the RBA’s next move.

Indeed, the June 28-30 survey showed there was a near split among economists with 16 of 31 expecting the central bank to hike its official cash rate (AUCBIR=ECI) to 4.35% at the July 4 meeting. The remaining 15 predicted a pause.

“While there is a higher risk of a pause in July … the strong employment growth in May and in previous months, as well as the lack of moderation in inflation, the balance is still such that the Bank is more likely to increase the cash rate in July than to pause,” said Adelaide Timbrell, senior economist at ANZ.

This report’s information was first seen on REUTERS; to read more, click this link.