ANZ Research has maintained its projection of a terminal cash rate of 4.1 per cent, despite softening in the Reserve Bank of Australia’s (RBA) monetary policy outlook following its 10th consecutive hike, which took the cash rate to 3.6 per cent.
In a market update released on Friday (10 May), ANZ Research said it continues to expect the central bank to lift the cash rate by 25 bps in both April and May.
Reflecting on its own analysis of ANZ spending data, the bank pointed to a “continuation of the rebalance” from non-food retail spending to travel and entertainment in February and early March.
According to the bank, this could suggest “some resilience in the household sector”, with this inflationary indicator compounded by the increase in dwelling values in Sydney and Melbourne over the month of February — as reported by CoreLogic’s monthly index.
However, ANZ conceded the pace of rate hikes could be slowed, as indicated by the RBA board’s latest statement and governor Philip Lowe’s most recent communications.
“Changes to the RBA’s post-meeting statement suggest the timing of further rate hikes will be more data dependent, giving the RBA an option to pause if the recent run of soft data continues,” the bank observed.
The Reserve Bank’s post-meeting statement included key amendments to past language, hinting at an earlier than expected halt to the monetary policy tightening cycle.
Following its February meeting, the board said it expected “further increases in interest rates will be needed over the months ahead”.
However, its latest statement omitted the reference to “increases” or adjustments “over the months ahead”.
RBA governor Philip Lowe later confirmed the central bank’s change of tune, noting the likelihood of a near-term pause.
“We are closer to a pause and it’s a matter of logic really, as you increase interest rates higher you get closer to the point where it is appropriate just to stop for a while and just assess the flow of data,” he told the AFR Business Summit on Wednesday (8 March).
“We’ve done a lot in a short period of time and at some point, it’s going to be appropriate to sit still and assess the collective effects of that.”
Lowe said the board would carefully assess key economic data to be released ahead of the next board meeting, including monthly employment, inflation, retail spending, and business indicators.
ANZ’s peers NAB and Westpac share projections of a terminal rate of 4.1 per cent.
However, Commonwealth Bank said it expects one additional 25 bps hike in April, taking the cash rate to a peak of 3.85 per cent.
Meanwhile, AMP Capital chief economist Shane Oliver said he sees a “strong case” for a pause in April amid slowing demand, improving supply conditions, mounting mortgage repayment stress, and the “absence of a wage breakout”.
“We are concerned that ongoing rate hikes risk unnecessarily plunging the economy into a recession,” he said.
“As such, it’s time for the RBA to have a pause and we are assuming a pause at their April meeting.”
Oliver also reiterated his expectations of monetary policy easing either later this year or in early 2025.
“While we have been way too optimistic on how far rates would rise and the risks are still on the upside, our view remains that we are at or near the top and that by late this year or early next the RBA will start cutting rates,” he added.
