Will ASX shares fall off a cliff on Tuesday?

Here we go again.

Investors will want to keep an eye on their ASX shares on Tuesday afternoon as the Reserve Bank of Australia board hands down its latest cash rate decision.

After 11 hikes in just 12 months, will the board push interest rates up even further to fight inflation? Or will it hold, hoping for the effects of previous rises to flow through the economy?

It’s an even-money bet at the moment.

A survey of 39 economic experts conducted by comparison site Finder showed 56% reckon the RBA will hold the cash rate. The remaining 44% are tipping a rate hike.

Fifteen of the 39 boffins are forecasting a 25 basis point rise.

One or two more rate rises to come

The reason for the uncertainty is that last week the latest consumer price index figures came in higher than anticipated.

So after months of heading in the right direction, all of a sudden the campaign against inflation has hit a considerable speed bump.

Finder head of consumer research Graham Cooke said it was no wonder the experts were divided.

“Despite the RBA board being heavily criticised due to its unprecedented series of rate hikes, the recent uptick in inflation may be enough to trigger another rate increase,” he said.

“Our experts forecast a maximum of two more rate rises this year. After that, the flood waters should start to subside.”

UNSW Sydney economics lecturer Dr Nalini Prasad is one of those tipping a rate rise on Tuesday.

“Although inflation has moderated, it still remains at levels well above that seen prior to the COVID-19 pandemic.”

The big worry was services inflation, she added, which remained strong.

“Since labour is the main component of services, this points to higher labour costs. This would be concerning to the RBA.”

One of the experts in the hold camp is Emerson Economics director and former federal trade minister Dr Craig Emerson.

“The economy is slowing already, with much more contraction yet to come through from previous cash rate increases.”

Services inflation is the problem child

The survey also predicted inflation would not drop to 2% until the June 2024 quarter at the earliest.

There is some hope that interest rates might come down later this year or early next.

“The long-term forecast from our panel is for inflation to continue to decline, which should mean the cash rate does, too,” said Cooke.

“This will be welcome news to those still in a variable mortgage, but may be bad news for savers.”

AMP chief economist Dr Shane Oliver agreed with Prasad that services inflation was the major problem.

“Inflation has peaked and inflationary pressures are easing, but it will take time to bring to services sector inflation.”

Bendigo and Adelaide Bank Ltd (ASX: BEN) chief economist David Robertson is on the pessimistic side.

“Headline CPI and core inflation should steadily fall through 2024, but neither are likely to be back in the RBA target band of 2% to 3% until 2025,” he said.

“Core services inflation is likely to be stubbornly elevated for some time.”