Interest rates unlikely to rise again in June

The RBA Board Minutes published at the start of May suggest that the board will not raise interest rates again in June, preferring to monitor ongoing developments in the economy, inflation and the Middle East over the next few months before determining whether further policy tightening is needed to bring inflation back to target within a reasonable time frame.

According to the CreditorWatch Economic Brief by Ivan Colhoun, the rise this month reflects slightly less negative expectations about family finances, more than outweighing concerns about the economy's outlook over the next year and five years.

Colhoun notes that these developments are likely attributed to the government’s fuel excise relief slightly outweighing the impact of the additional interest rate rise in May.

There were major developments in several categories not within the calculation of the headline consumer sentiment index. The “time to buy a dwelling” index dropped sharply in May (-16.1 per cent m/m), which Colhoun attributes to budget tax changes.

However, Westpac said the index had been pointing to weakening housing sentiment for some time.

In terms of unemployment expectations, it recovered 5.2 per cent in May; however, it remained sharply higher than a few months ago, with Colhoun indicating a likely reflection of consumers’ assumptions that higher interest rates and higher energy prices don’t augur well for either the economy or the labour market over time.

Even after a moderate rebound in May, consumer sentiment stays pessimistic, with cost-of-living pressures, high interest rates and weakening housing confidence continuing to weigh on households.

Whilst the unemployment forecast slightly improved, concerns regarding the broader economy continue.

The overall expectation is that the RBA will pause rates in June as it assesses inflation, economic conditions and geopolitical uncertainty.