RBA expected to keep rates on hold for now: HSBC

With inflation below market expectations, HSBC Bank Australia expects the Reserve Bank of Australia (RBA) to leave the cash rate at 2.50% for this month.

This year’s Quarter One Consumer Price Index (CPI) figures showed inflation running at 0.55% quarter on quarter and at 2.65% year on year.

According to HSBC, the inflation results suggest that the RBA is likely to keep the cash rate on hold for this month. But the bank expects that the next change to the cash rate will be an increase, given that inflation is in the upper half of the RBA’s 2-3% target band.

The overnight cash rate is currently at 2.50%, a record low. According to HSBC economist Paul Bloxham, it is unlikely that the RBA will make any further cuts to the cash rate, with strong indicators of economic growth and “the housing market booming.”

HSBC’s Bloxham expects the RBA’s next rate hike as soon as Q4.  According to the bank, lifting momentum in the domestic economy is offsetting current declines in mining investment.

In its latest RBA Observer report, HSBC also states that despites media rhetoric, the bank does not expect the May federal budget to be as tight as some anticipate. The report cites a commitment by the government to increase spending with the paid parental leave scheme and to reduce taxation by abolishing the carbon and mining tax.