📝 RBA Set to Pause In April, Deliver Final Rate Hike In May: Westpac

We expect the March quarter report will show core inflation still running at 6.7%yr, down only slightly from 6.9%yr, and that the RBA’s updated forecasts will show no marked improvement in the inflation outlook. We do not think that a further pause would be credible in the face of ongoing high inflation and prospects of not returning to the target band until mid-2025.

We expect a further lift in the cash rate from 3.6% to 3.85% at the May meeting.

We maintain our call that the preconditions for the beginning of the easing cycle will be apparent in the March quarter of 2024. These include a fall in the inflation rate to below 4%; policy deeply in contractionary territory (we see the neutral cash rate as being around 2.75–3.0%); the economy stagnating through the second half of 2023 and the prospect of continued weakness in the first half of 2024; the unemployment rate heading towards 5% by end 2024; and wages growth slowing from a 2023 peak of 4%.

-Westpac