Standard Chartered strategist Nicholas Chia has revised his forecast for the Reserve Bank of Australia (RBA), now expecting a cash rate hike to 4.10% at the upcoming 17 March meeting, reversing his previous expectation of a rate hold [1]. The bank also anticipates an additional rate increase in the second quarter, raising its terminal rate forecast to 4.35% from the prior 4.10% [1]. This shift is attributed to firm activity data and a recent upturn in inflation expectations, which are seen as driving the RBA's hawkish stance [1].
Chia notes that recent activity indicators remain robust and that RBA messaging before the blackout period has leaned towards a hawkish tone [1]. The strategist highlights that the main factor influencing the forecast change was the upshift in inflation expectations, which the RBA is believed to have limited tolerance for, especially if there are signs of short-term inflation expectations becoming de-anchored [1]. While some of the inflation pressure may be due to a recent oil price shock, the RBA is likely to be cautious about broader inflation risks [1].
There is a high likelihood of a split decision among the RBA board members, with hawks potentially favoring a quicker tightening of policy to maintain economic balance [1]. Standard Chartered tentatively maintains its view for a further rate hike in Q2, likely at the May meeting, but will monitor for any signs of weakening economic activity resulting from tighter financial conditions [1].
Chia acknowledges that the 17 March rate decision is expected to be a close call, with the key risk being the possibility that the RBA may opt to hold the cash rate and wait for additional economic data, such as quarterly core inflation, before making further moves [1].
CONCLUSION
Standard Chartered now expects the RBA to raise rates at its March meeting, citing firm activity data and rising inflation expectations as key drivers. The forecast includes another hike in Q2, but the decision is likely to be closely contested, with risks that the RBA may wait for more economic data. Market sentiment is moderately positive, reflecting expectations of continued policy tightening.