Earlier this month the Reserve Bank of Australia (RBA) executed its third 50-basis point (bp) lift in a row in its fastest tightening cycle in almost 30 years to bring inflation back to target.
Minutes from the bank’s policy meeting have now revealed that further hikes will be executed in a way that keeps the economy on an even keel.
“The path to achieve this balance is a narrow one and subject to considerable uncertainty,” the minutes, published on Tuesday, read.
The bank did, however, slightly downgraded its GDP expectations, predicting growth of 3.25 per cent in 2022 and 1.75 per cent in 2023 and 2024.
Repeating its now infamous mantra, the RBA added that “the size and timing of future interest rate increases will be guided by the incoming data and the board’s assessment of the outlook for inflation and the labour market, including the risks to the outlook”.
Earlier this month, the RBA upped its inflation forecast, citing a high of 7.75 per cent in 2022, a little above 4 per cent over 2023 and around 3 per cent over 2024.
Following the bank’s August rate call, CBA confirmed its base case is for one more 50-bp hike in September, followed by a 25-bp hike in November, bringing the cash rate to a peak of 2.60 per cent.
AMP chief economist Shane Oliver similarly predicted that interest rates would peak at around 2.60 per cent, which he noted was at the low end of current forecasts.
“Market and consensus expectations for the cash rate to rise above 3 per cent are too hawkish,” he argued.
“Global supply pressures on inflation appear to be easing; the RBA is already getting traction in terms of slowing demand and is starting to recognise this with downgrades to the outlook for economic growth; inflation expectations are still contained; and many households will experience significant financial stress with rising rates.”
In contrast, ANZ has predicted that the RBA will lift rates to 3.35 per cent by year’s end, with three additional 50-bp rate hikes expected in September, October and November.
ANZ head of Australian economics, David Plank said that, while Dr Lowe’s statement did not make reference to the withdrawal of ‘extraordinary’ monetary support as in previous months, the bank still believes a 50-bp lift in September is the most likely scenario.
“The cash rate is still some way below the lower bound of the RBA’s estimate of neutral,” he stated.
Westpac also concluded that Dr Lowe’s statement did not appear to provide any evidence of a 25-bp hike in September. The bank has forecasted a 50-bp lift in September will be followed by four more increases of 25 bps, pushing the cash rate to 3.35 per cent by February next year.
Finally, NAB has also pencilled in a hike of 50 bps in September, followed by lifts of 25 bps in October and November to a peak of 2.85 per cent.
