Will the RBA increase rates today?

Red percentage sign on blocks on top of each other, symbolising interest rates.

Red percentage sign on blocks on top of each other, symbolising interest rates.

This afternoon, the Reserve Bank of Australia (RBA) will be meeting to discuss the cash rate once again.

The previous two meetings have seen the central bank raise rates by 0.5% on each occasion. Will the same happen again this time?

Will the RBA raise rates today?

The good news for savers and the bad news for borrowers is that the market is expecting the RBA to raise rates again on Tuesday.

According to the latest cash rate futures, the market is pricing in a 67% probability of an increase from 1.35% to 2%.

However, the more likely outcome according to economists will be a third consecutive 0.5% increase to 1.85%.

The economics team at Westpac Banking Corp (ASX: WBC) are among those forecasting a 0.5% increase this afternoon.

Westpac’s chief economist, Bill Evans, explained last week that he doesn’t expect this to be the final time the central bank lifts rates by this amount. He said:

For August, the Governor will continue to make the case for justifying a third consecutive 0.5% move therefore laying the foundation for the expected [0.5%] move in September.

After which, Evans is expecting rates to continue to rise but in smaller increments. He explained:

Just as we saw Chairman Powell, during the post FOMC Press Conference this week, imply that having reached the neutral zone (around 2.5%) with the federal funds rate (now 2.375%) it would be appropriate to slow the pace of tightening, we expect that following the 0.5% increase in September the RBA Board will move back to 0.25% increments from October as policy moves into the contractionary zone.

All in all, the bank expects this to eventually lead to the RBA maintaining the cash rate at 3.35% throughout 2023.

The post Will the RBA increase rates today? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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