Will the RBA Hike To 4.35% On May 5? Today’s CPI Number Decides

RBA May Hike Again if CPI Runs Hot

The Australian Bureau of Statistics releases the March quarter inflation number at 11:30 am today, and it decides whether the Reserve Bank hikes the cash rate from 4.10% to 4.35% on 5 May. All four big four banks (CBA, NAB, Westpac and ANZ) are now forecasting a hike, and ASX 30-day cash rate futures are pricing roughly a 74% probability of it. In our view, today’s number tilts towards a hike. Inflation has been moving the wrong way, and the last RBA decision passed by just one vote (5-4 in favour of the March hike), meaning the hawks already have the numbers on the board.

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Three Scenarios For Today’s CPI Print

The trimmed mean, the RBA’s preferred measure of underlying inflation, is the number to watch. There are really only three outcomes today.
A high number (above 3.4% annually): a hike is almost certain. The RBA cannot ignore inflation moving further away from its 2-3% target.
A line-ball number (3.0% to 3.4%): a hike is still likely, but a pause becomes possible. This is the messy outcome that creates volatility.
A soft number (below 3.0%): a pause is on the table, giving the RBA cover to wait and see.
We believe the most probable outcome is a print in the 3.3% to 3.5% range, which leaves the RBA with little room to hold.

What A Hike Means For ASX Bank Stocks

If the RBA hikes, the immediate winners are the big four banks. Higher rates typically expand net interest margins, and that gap flows straight to earnings.
Commonwealth Bank (ASX:CBA) is best positioned because of its dominant home loan share. National Australia Bank (ASX:NAB) benefits from business banking exposure, which reprices faster than retail. Macquarie Group (ASX:MQG) is our preferred play because its trading businesses also benefit from rate volatility on top of the margin lift.

The risk worth watching is loan defaults. We believe the margin benefit outweighs the credit risk in the near term, but the next round of bank earnings will test that view.

What A Hike Means For Borrowers And Property Stocks

For the average mortgage holder, another 0.25% hike adds roughly A$90 a month to a A$600,000 loan with 25 years remaining. For property and REIT stocks, the impact is negative. Higher rates compress valuations and slow housing demand. Mirvac (ASX:MGR), Stockland (ASX:SGP) and Lendlease (ASX:LLC) all face sustained pressure if tightening extends.

The Investor’s Takeaway Ahead Of The CPI Release

In our view, the path of least resistance is a hike to 4.35% on 5 May. The data is moving away from the target; the board has shown it will act on a tight vote, and all four majors are forecasting it. The real question is whether Westpac is right that this starts a longer cycle to 4.85%, or whether the others are right that it is the final move.

For positioning, we favour the big four banks (CBA and NAB are our preferred picks, and MQG for rate volatility) and would reduce residential REIT exposure ahead of the May meeting. Watch the market reaction in the 30 minutes after 11:30 am. If banks rally hard, the market is pricing a hike. If they fade, investors think the RBA holds.