The Reserve Bank of Australia could be the first major global central bank to hike rates in this cycle.
We are set to get a decision on the cash rate at 10:30 pm ET and the consensus is for a 25 basis point hike to 3.85%. It’s far from a sure thing as economists only shifted their calls over the past couple weeks as inflation and jobs data beat estimates. The market remains uncertain with about a 75% chance of a hike priced in.
Of the 31 economists in the Reuters survey, 24 expected a hike and 7 are forecasting no change. Deutsche Bank, Goldman Sachs and Morgan Stanley are among those forecasting the RBA holds rates but — notably — all of the big Australia banks are calling for a hike.
The Australian economy has proven resilient as house prices have firmed even with high interest rates. Back in the post-covid period, the RBA was forced into an embarassing backtrack after pledging to hold rates for the long term. Instead, they were among the first to hike rates in May 2022 and ultimately hiked from 0.10% to 4.35%.
As economic conditions softened and inflation stabilized, they cut rates in February 2025 in what initially looked like the start of an extended period of rate cuts. Instead, the final cut came in August and now the central bank may be quickly pivoting back to hiking.
The Reserve Bank of Australia left the cash rate unchanged at its last meeting, marking a third consecutive pause in a unanimous decision. While the statement itself was largely neutral and reiterated a data-dependent stance but Governor Bullock was surprisingly hawkish in the press conference. Since then, the market has tip-toed towards a rate hike.
But the tipping point came after the jobs report saw unemployment fall to 4.1% from 4.4% IN December as 65.2K jobs were added. December CPI also ran above expectations.
Aside from a hike there will be a focus on guidance. The economists’ consensus is still that this will be a one-and-done hike for the year but that’s rarely the way central banks operate and some firms — like NAB — see 4.10% by year end. The RBA will give us its own forecasts via the Quarterly Statement on Monetary Policy and Bullock will further qualify at 11:30 pm ET.
For the Australian dollar, expect a good sized move on the headline, as much as 50 pips in either direction. I increasingly like the Australian dollar backdrop as global growth picks up and metals prices boom.
This article was written by Adam Button at investinglive.com.