The board will announce its official cash rate call for May on Tuesday alongside a refreshed set of economic forecasts.
Heading into the two-day meeting, analysts were broadly in agreement the central bank would be leaving interest rates at 4.35 per cent – where they have been since November last year.
Yet following stronger domestic and overseas inflation data, a shadow RBA board of economists at the Australian National University said they were less confident in their recommendation to hold interest rates steady.
“The persistence of inflation, especially in the United States, and the consequent need for monetary policy to be tighter for longer than expected, is of immediate relevance to the RBA,” the shadow board wrote.
Economists were also expecting updates to near-term forecasts and changed posturing around future interest rate moves.
Some have suggested a central bank board warning of more hikes may be needed after softening its stance at the meeting before.
The May cash rate meeting will also be the last before the federal government’s budget next week.
Economists and the opposition have been warning Labor to keep its spending in check to avoid fanning the flames of inflation and putting pressure on the RBA.
KPMG chief economist Brendan Rynne said a budget in “expansion mode” would be the biggest threat to inflation taking off again.
He said government spending as a total of GDP was too high, running at around 27 per cent compared to the pre-pandemic average of around 24 per cent.
“What we really need now is for the federal budget not to add to aggregate demand – it should be neutral, or if possible, even slightly contractionary,” he said.
Shadow treasurer Angus Taylor said the government needed to “contain its addiction to spending” or risk inflation staying higher for longer.
Yet Treasurer Jim Chalmers said both “scorched earth austerity” and “free-for-all-spending” needed to be avoided, noting that the economy was also dealing with slowing growth as well as persistent inflation.
“We are charting a responsible middle path,” he said on Monday.
– AAP
