David Plank, ANZ's head of Australian economics, said the omission of the word “patient” in Tuesday’s monetary policy meeting held a lot of weight, savings.com.au reported.
“We’ve gone with a June start rather than May because the RBA specifically states that over coming months, important additional evidence will be available to the board on both inflation and the evolution of labour costs,” Plank said. “While the board will have the inflation data in time for the May meeting, it won’t have new information on labour costs until it meets in June.”
Plank said the bank now forecasts RBA to tighten by 15 basis points in June, followed up with a 25-basis-point rate hike in July and August, plus a further 25-basis-point increase in November, which will then take the cash rate target to 1% by the end of 2022, savings.com.au reported.
“From there we expect 25-basis-point rate hikes in each quarter of 2023, taking the cash rate to 2% at the end of 2023,” he said.
NAB initially predicted the first cash rate hike would occur this November, but revised its forecast last month to August.
Tapas Strickland, NAB’s director of economics, said the central bank clearly signalled that it is contemplating lifting rates over coming months with this month’s statement.
“NAB now sees the RBA hiking in June and we will revise the interest rate track for the remainder of the year,” Strickland said. “Households are well placed to handle the first phase of tightening that we expect this year and next, taking the cash rate to around 1.5-1.75%, but a further move to 3% or above over that timeframe as markets price is too aggressive and would place undue pressure on the household sector.”
Strickland said a surge in core inflation in the first-quarter CPI could lead RBA to think that it has little choice but to move. A May rate hike, therefore, should not be ruled out.
ABS quarterly inflation data showed underlying inflation hit 2.6% in the December quarter, which is the “midpoint of the RBA’s target band.”
And with the Federal Election reportedly scheduled for either May 14 or 21, the central bank won't want to be seen as rocking the boat.
“The timing of the May federal election is a complication,” Plank said. “One option is for the RBA to make the case for a rate hike in its May statement and then deliver it in June when the labour market data provides more confirmation. This was the template the RBA followed in 2019 when it cut the cash rate at its June meeting, having prepared the way in its May statement ahead of the 2019 federal election.”
The last time the RBA cut the cash rate was in November 2020, and the last hike was in November 2010, savings.com.au reported.
