The Reserve Bank of Australia has emerged with a rare decision crack, with the May interest rate prospects shrouded in "fog".

Noting that the internal division within the Reserve Bank of Australia has weakened confidence in a third consecutive interest rate hike, economists and traders hold vastly different views on whether the bank will raise rates again in May or wait for the subsequent impact of the Iran war. The Reserve Bank of Australia on Tuesday voted 5 to 4 to raise the cash rate from 3.85% to 4.1%, marking the first split since July of last year. Such a slim voting margin means that the future policy path will heavily depend on real-time data and risk assessment. If the RBA were to raise rates for a third consecutive meeting with rates already above 4%, it would be the first time since early 2010. Taking such action in the backdrop of the Middle East conflict leading to a surge in energy prices and threatening global growth prospects is highly unusual. The other seven major central banks meeting this week, including the European Central Bank and the Federal Reserve, are expected to keep rates unchanged. Robert Thompson, economist at Royal Bank of Canada in Sydney, said, "We recognize that raising rates in the face of uncertainty, not to mention negative supply shocks, is challenging. This deviates from the usual standards of monetary policy." "The RBA still retains the possibility of further policy tightening. All things considered, we believe they will take action again." Like Thompson, economists and traders still see a higher likelihood of further rate hikes, although the debate now centers on whether it will happen in May or in August. The market sees a 60% chance of a rate hike in May and nearly 90% chance of a rate hike in August. Reserve Bank Chair Michele Bullock said in a press conference on Tuesday that the four dissenting members wanted to take a hawkish wait-and-see approach this week, shifting towards a rate hike in May. Some interpreted this as a dovish signal, suggesting that the minority received the rate hike they did not vote for and may no longer support a rate hike in May. Others believe that, given the timing of the discussion around rate hikes, this disagreement indicates a willingness by the committee to further tighten policy. Currently, all "Big Four" banks - Westpac, National Australia Bank, ANZ Bank, and Commonwealth Bank of Australia (CBA) - all expect a rate hike in May, although CBA's Belinda Allen sees it as a "tipping point". Royal Bank of Canada, Nomura Holdings, and Citigroup also expect the RBA to raise rates in May, while Goldman Sachs sees a 30% chance of this outcome. Citi's Josh Williamson believes that the internal dynamics of the committee may still lean towards tightening policy, but he emphasizes the uncertainty in members' voting patterns. Williamson speculates that the staff recommendation may be a 25 basis point hike, indicating that Bullock and her deputies Andrew Houser, economist and scholar Ian Harper, and new committee member Bruce Preston are in favor of this move. Williamson believes that on the other hand, Treasury Secretary Jenny Wilkinson and former union leader Ian Ross may be opposing, while the remaining votes are in the hands of Mani Baeck, Rainy Fleay-McGibbon, and Caroline Hughes. Among these three, Citi assesses that Hughes, coming from the older RBA committee structure, is most likely to follow the staff recommendation, while there is "considerable uncertainty" in the voting direction of Baeck and Fleay-McGibbon. "The committee is not a radical one, but it has some radical members," Williamson said. "The committee members have not engaged in public communication," and added that his views are based on "best guessing" and "past experience". Given the volatile global environment and domestic economic uncertainty before the rate decision on May 5th, many factors may change in the seven weeks leading up to it. Domestically in Australia, the central bank will receive first-quarter inflation data at the end of April, which along with updated forecasts from the RBA staff will be the main factors for the May decision. Before that, the central bank will look at labor reports on Thursday and around mid-April, and consumer spending data in the coming weeks. The trajectory of oil prices driven by the US-Iran war will also be crucial for the outlook and help policymakers determine whether domestic demand and capacity pressures are still strong enough to warrant further action, or if global uncertainty means patience is required. Andrew Teichester of Nomura Securities said, "Given the committee's readiness to address inflationary risks from the Middle East situation - even as downward risks to growth increase - we have added one final rate hike to our forecast," "We believe this is most likely to happen in May or August, currently leaning towards May."