Interest rates: RBA ‘one bad inflation report’ away from raising rates, say economists

Already a subscriber?Another hot inflation print on Wednesday prompted traders to bid up bond yields and ditch equities as economists mulled the growing risk that the Reserve Bank of Australia may need to lift rates further to pull inflation down to target.– its highest level so far this year – overshooting expectations for inflation to cool to 3.4 per cent and above the RBA’s 2 per cent to 3 per cent target.

Following the news, Australian bond yields rose with the three-year rate up eight basis points to a one-month high of 4.11 per cent and the 10-year return added seven basis points to 4.43 per cent.Yields for Australian government bonds had already jumped ahead of the report, following weak demand for two US treasury bond sales overnight.

They imply a 20 per cent chance of a rate rise by September, from 16 per cent before the inflation data. They’ve also pushed back the likely timing of the first rate cut to December 2025 from May 2025 indicated just last week.Mr Carnell said ING was considering whether the risk had “shifted to the possibility of some further RBA tightening”, despite most economists predicting the next move in the cash rate to be lower.

Judo Bank advisor and economist Warren Hogan – who has been calling for more rate hikes for much of the last year – said April’s unexpected pickup in inflation could prompt the RBA to lift the cash rate as soon as next month.

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