May 2023
The end-of-May forecasting for the RBA cash rate survey by finder.com.au follows the anouncement of inflation for May 2023 at the level of 6.8%. It fell, but remains high. The new data leads to forecasts indicating a decisive increase in the cash rate in June and subsequent increases further on.
Cash rate forecasts
The figure below presents the monthly cash rate series starting from January 2010, with the forecasts reported from June 2023 to May 2024 as the forecast mean and the 68% forecasting intervals.
The table below makes the numerical values presented in the figure more accessible.
| monthly | lower | upper | |
|---|---|---|---|
| Jun 2023 | 4.01 | 3.92 | 4.12 |
| Jul 2023 | 4.14 | 3.98 | 4.31 |
| Aug 2023 | 4.30 | 4.07 | 4.54 |
| Sep 2023 | 4.44 | 4.15 | 4.76 |
| Oct 2023 | 4.54 | 4.17 | 4.93 |
| Nov 2023 | 4.65 | 4.20 | 5.12 |
| Dec 2023 | 4.75 | 4.23 | 5.30 |
| Jan 2024 | 4.85 | 4.26 | 5.48 |
| Feb 2024 | 4.96 | 4.32 | 5.67 |
| Mar 2024 | 5.04 | 4.34 | 5.82 |
| Apr 2024 | 5.10 | 4.33 | 5.93 |
| May 2024 | 5.13 | 4.30 | 6.03 |
Survey answers
Based on the forecasts above, and the analysis of forecasts from individual models, I formed the following survey answers:
When you think the RBA will change the cash rate?
| Jun 2023 | Jul 2023 | Aug 2023 | Sep 2023 | Oct 2023 | Nov 2023 | Dec 2023 | Feb 2024 | March 2024 or later | |
|---|---|---|---|---|---|---|---|---|---|
| Increase | ✓ | ✓ | |||||||
| Decrease |
Why do you think this?
Based on the new data from May, all my forecast systems are aligned and indicate a 15 basis point rise in the cash rate, with further increases expected throughout the year. The forecast intervals have also been narrowed to 3.9 to 4.1%, leaving little doubt about the projected raises. All this seems to be in line with the slowly falling inflation rate, which reached 6.8% in April. My forecasting system for this month includes thirty-two bond yield models for weekly and monthly data and sixty-four complex dynamics time-varying risk models encompassing the leverage effect and risk premium. The forecasts from individual models are further pooled based on their cash rate forecasting capacity.
By how much do you think the RBA will change the cash rate in the next meeting?
15 pbs
At what level do you think the cash rate will peak?
4.1%
When do you think the cash rate will peak?
July 2023
RBA’s decision
On 2 May 2023, the RBA announced an increase in the cash rate target by 25 basis points.
Forecasting system
My monthly forecasts were based a similar forecasting system as the one I developed for April forecasts as well as a new set of univariate models. The latter includes models of the cash rate capturing complex patterns of data persistence using autoregressive moving average equation extended by time-varying volatility equation - a GARCH model. Part of the models include the leverage effect and/or time-varying risk premium. The best fitting models are with the richest dynamics, that is a (3,3) ARMA order, the GARCH equation with the leverage and in-mean effects. The data is plotted below.
