As life begins to return to normal across the country, the RBA has decided to hold the official cash rate at a record low 0.1 per cent for the 11th consecutive month.
However, with inflation now comfortably within the RBA’s target range, economists are confident the central bank will soon abandon its record low interest rate policy timeline.
“The RBA is under the pump as the prospects of earlier than expected interest rate rises mount. Market interest rates will rise in the interim, or so everybody expects,” said CreditorWatch chief economist, Harley Dale.
“As economic conditions move in a way that is sometimes evolving and sometimes revolutionising, the RBA is sticking to its record low interest rate policy, but not necessarily the timing of it,” Mr Dale noted.
He is convinced the RBA’s final 2021 statement, due on 7 December, will be a key update given the bank will have had the opportunity to scrutinise an increasing amount of information regarding post lockdown economic outcomes.
“The December RBA monetary policy announcement will be the most important of 2021, followed by the Melbourne Cup Day update. November 2nd is race day; December 7th is game day.”
The market has largely brought forward tightening expectations to mid-2022, pricing in a 0.25 per cent cash rate by May 2022 and a 1.25 per cent cash rate by the end of 2022.
Fund manager Janus Henderson expects the RBA to “make haste slowly, initially exiting unconventional policy measures and commencing a tightening cycle from mid-2023 onwards”.
Similarly, AMP Capital’s Shane Oliver is not convinced the bank will be quite as hasty as much of the market foresees.
“The conditions for a rate hike – i.e., inflation sustainably in the 2-3 per cent target range which will likely require full employment and wages growth of 3 per cent or more – are still not met. But with recovery getting back on track they should be by 2023,” Mr Oliver said.
AMP expects the first hike to be in November 2022 taking the cash rate to 0.25 per cent followed by a 0.25 per cent hike in December 2022, taking the cash rate to 0.5 per cent by the end of next year.
In the interim, AMP is confident the RBA will bring forward its guidance for the first-rate hike to 2023 and further taper its bond buying in February next year to $2 billion a week.
