Economists at the big four bank had previously predicted that the RBA would deliver increases of 25 bp in both April and May to reach a terminal cash rate of 4.1 per cent.
However, in a note on Thursday, ANZ’s economists confirmed that they had reassessed their outlook in light of the RBA’s decision to pause this month as well as RBA governor Philip Lowe’s address to the National Press Club on Wednesday.
“We now expect the RBA to keep the cash rate unchanged until August when we expect a 25 bp hike to take it to a peak of 3.85 per cent,” they said.
According to the economists, the RBA is still expected to keep rates higher for longer, with ANZ forecasting that the first rate cut will take place in November next year.
Regarding the decision to pause in April, they pointed out that the board now wants to assess the impacts of the cumulative 350 bp of hikes handed down to date.
“This is consistent with Lowe’s aim of preserving labour market gains made over the past few years. He yesterday flagged that the RBA now believes the cash rate is in restrictive territory, so the board is shifting to less frequent moves,” ANZ’s economists said.
Given the RBA’s April pause, the economists argued that the bar for a rate hike in May is high.
“While labour force, consumer spending, and business survey data will all be important, ultimately the Q1 CPI print would need to exceed the RBA’s forecasts to prompt a rate hike in May in our view. The monthly CPI indicator suggests that’s unlikely to be the case,” they said.
“But the RBA is not done yet. Lowe flagged more monetary tightening ‘may well be needed’, and was clear that talk of rate cuts later this year was premature. The balance of risks lies to further rate rises.”
In ANZ’s view, August appears to be the likely timing for the next hike, following on from the Q2 CPI report due out in late July and just prior to the publication of the next Statement on Monetary Policy, which will include a new set of forecasts from the RBA.
“By then, we expect labour market, wage and inflation data to be strong enough to prompt a final 25 bp hike, taking the cash rate to a peak of 3.85 per cent,” the ANZ economists said.
“Inflation and wage data are likely to remain elevated after August, and this will keep risks tilted towards a higher terminal rate. But we expect that weakening global and domestic growth will give the RBA justification to keep rates on hold for an extended period, with an easing in policy unlikely until late-2024.”
In fact, CBA has now predicted that the RBA would cut rates by 50 bps in the fourth quarter of 2023, followed by a further 50 bps of easing in the first half of next year.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.