Standard Chartered strategist Nicholas Chia notes that the Reserve Bank of Australia raised the cash rate to 4.10% in a 5-4 split decision, largely debating timing rather than direction. The bank still expects a final hike to a 4.35% terminal rate in Q2, but sees risks skewed towards a hold as futures pricing looks too hawkish.

RBA hike, but risks tilt to hold

"The Reserve Bank Of Australia (RBA) raised the cash rate to 4.10% on 17 March in a 5-4 split decision, as we had expected. The RBA statement reiterated increased capacity pressures stemming from excess demand in H2-2025, in reference to above-trend Q4 GDP growth."

"It also alluded to higher oil prices, which, if sustained, would add to headline inflation, citing upside risks to inflation and inflation expectations."

"At the press conference, Governor Bullock firmly pushed back against suggestions that she and Deputy Governor Hauser were advocating for a rate hike in speeches prior to the blackout period. She attributed today’s rate increase primarily to excess demand in the economy, although the oil price shock does make the RBA’s job harder by raising headline inflation in the near term. "

"The main debate within the board was about the timing of the rate increase, as opposed to the direction of rates; those who voted for a hold wanted more time to see how external developments play out, and the ensuing spillovers to global economic growth if oil prices stay higher for longer."

"The risk to our view of a final rate hike to a terminal rate of 4.35% in Q2 is skewed towards a hold. We acknowledge that the RBA may not be inclined to tighten policy at a third successive meeting in May, and the policy statement did not appear to validate the hawkish rate path priced in by futures (c.+48bps by December), stating that policy is “well-placed to respond to developments”."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)