Following the RBA’s largely unexpected decision to increase the cash rate by 25 basis points for October, economists at ANZ were the first to move their predictions.
ANZ
ANZ Head of Australian Economics David Plank had expected the RBA to tighten by 50 basis points in October given the elevated level of job ads, vacancies and the strength of inflationary pressures.
“This is not to say we aren’t mindful of the lags between monetary policy and its economic impact,” Mr Plank said.
“We had thought the RBA would want to take the cash rate above the absolute bottom of the range it thinks is neutral - at least 2.5% - before scaling back.
“The slower pace of rate hikes increases the risk that rates need to go higher than previously expected, as demand remains too strong and sentiment is initially boosted by the RBA’s moderation."
Previously forecasting the cash rate to reach 3.35% by year’s end, ANZ economists now view the RBA cash rate target peaking at 3.60% in May 2023.
This forecast lies two months later than that of Westpac economists, who remain of the view that the cash rate will peak at 3.60% in March 2023.
IFM Investors
IFM Chief Economist Alex Joiner said the RBA is the first central bank to switch to a more dovish tack in its attempt to curb inflation with domestic and global factors now considered.
“Market pricing of a cash rate above 4% is looking even more unlikely than it did before this October meeting,” Mr Joiner said.
AMP
This sentiment is echoed by AMP Chief Economist Shane Oliver, noting the cash rate won’t have to go as high as the 4% or higher that the money market has been factoring in.
“A rise in the cash rate to 4% or more would push total mortgage repayments to record highs relative to household income,” Mr Oliver said.
“Inflation pressures are (less in Australia than elsewhere, now around 7% year-on-year compared to over 8% in the US and 10% in Europe. So there is no need to match other central banks rate hikes.”
“Given the need to assess the lagged impact of rate hikes and the rising risk of recession globally, the RBA was right to break from the hawkish global central bank consensus and slow down the pace of hikes.”
Mr Oliver has reaffirmed AMP’s forecast that the cash rate will reach 2.85% by year’s end, with the risk of reaching 3.1% on the upside.
CommBank
This view of AMP economists lies in line with those of CommBank economists, having correctly forecast a 25-basis point lift to the cash rate in October.
CommBank Head of Australian Economics Gareth Aird said the cash rate now sits in restrictive territory based on the RBA’s view that the neutral rate is 2.50%.
“However, the RBA’s estimate of the neutral cash rate is 100 basis points above our estimate, so this means we believe monetary policy is now comfortably in the contractionary zone,” Mr Aird said.
“We expect a further 25 basis point rate rise at the November Board meeting.
“From that point our central scenario has the RBA on hold as they the give themselves time to assess the lagged impact of rate rises on the Australian economy.”
Updated major bank economists' cash rate forecasts
- CommBank economists: peak at 2.85%, up from 2.60%.
- Westpac economists: peak at 3.60%.
- NAB economists: peak at 2.85%.
- ANZ economists: peak at 3.60%, up from 3.35%.
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Rachel Horan
Harrison Astbury
