After delivering back-to-back interest rate hikes of 50 basis points (bps) in June and July, the Reserve Bank (RBA) could be set to announce a further four successive 50-bp rate hikes this year.
On Tuesday, ANZ forecasted that the RBA will announce 200 bps of additional tightening over the coming months, including 50-bp hikes at the central bank’s meetings in August, September, October and November.
If all four of the forecast rises eventuate, the cash rate would reach 3.35 per cent by year’s end, more than 12 months earlier than the bank predicted previously.
“This reflects the strong momentum in the labour market and the clear upside risks to inflation. We don’t think the RBA will be comfortable with policy merely getting to neutral by year-end given this backdrop,” said ANZ head of Australian economics, David Plank.
Mr Plank cited the “spectacular” employment growth seen in the June labour market data from the Australian Bureau of Statistics (ABS) which showed that the unemployment rate has reached its lowest level since 1974 at 3.5 per cent.
He also noted that job ads and vacancies were both currently at extremely high levels.
“The large stock of vacancies suggests that it will take a considerable slowdown in the economy for underutilisation not to fall further. Our longstanding forecast has been for unemployment to drop to 3.3 per cent in the later part of 2022,” said Mr Plank.
While four 50-bp rate hikes are seen by ANZ as the most likely scenario moving forward, the bank suggested that an even bigger increase in August or September is also a “very real possibility”.
This could include a rise of 75 bps, or 65 bps if the RBA seeks to ‘round’ the current cash rate, but ANZ stated that the central bank would not look to jump too far at any one time.
“The faster move to a restrictive rate setting will bring forward the point at which the economy slows below trend. It also suggests house prices will fall by more than the 15 per cent or so we currently anticipate to the end of 2023,” Mr Plank said.
“But it doesn’t necessarily mean a hard landing for the economy. A cash rate of 3.35 per cent implies that household interest payments as a percentage of household income peak below the level reached in 2008.”
ANZ tipped that wages growth would accelerate and then remain persistent over the next year and a half, which it said suggests a rapid shift to rate cuts would be unlikely.
At present, the bank expects the cash rate will remain at 3.35 per cent through to 2024.
“Still, the downside risks to the economy are significantly increased by the faster move to a restrictive cash rate setting,” added Mr Plank.
On Monday, ANZ announced it had agreed to acquire Suncorp Bank for $4.9 billion.
