The investment manager expects rates to climb to 2.75 per cent by end 2023, which would make monetary settings “slightly restrictive”.
“We expect the RBA to tighten consecutively at its next three meetings, with a ‘‘not business as usual’’ 40-bps move on the cards in response to either a strong lift in the minimum wage at the next Fair Work Commission hearing or strong Q2 CPI print,” Frank Uhlenbruch, investment strategist in the Janus Henderson Australian fixed interest team, said.
“Such an outsized move would help tidy the cash rate up to a more normal 0.25 per cent multiple. We have also pencilled in another 25-bps move in November, which means we are looking for a 1.5 per cent cash rate by year end. With the cash rate still below neutral, we look for further tightening over 2023, which takes the cash rate to 2.75 per cent,” Mr Uhlenbruch continued.
The Reserve Bank of Australia’s (RBA) May statement on monetary policy revealed that the technical cash rate assumptions used to generate the RBA’s 4.25 per cent economic growth forecast for 2022 and 2 per cent for 2023 were a cash rate of between 1.5 per cent to 1.75 per cent by year end and 2.5 per cent by end 2023.
Such a profile sees the headline and core inflation rate lift to 6 per cent and 4.75 per cent by the end of 2022, before falling back to 3 per cent mid-2024 as tighter policy grips.
Market expectations, although recently wound back, still predict a 2.5 per cent cash rate by year end and 3.25 per cent by late 2023.
But according to Mr Uhlenbruch, they are “too aggressive”, with markets holding onto the narrative that outright tighter policy is needed.
Last week, ANZ said it is expecting the RBA to hike rates by 0.40 per cent to 0.75 per cent at its next meeting on Tuesday.
The big four bank upgraded its prediction following the release of Wednesday’s national accounts data, which showed an acceleration in average hourly wages.
In a Twitter update, ANZ said: “After the sharp acceleration in average hourly wages in Australia's #GDP report today, we expect the #RBA to lift the cash rate by 40bp at its June meeting.”
The RBA lifted rates for the first time in over a decade at its May meeting in a response to a significant lift in inflation.
Maja Garaca Djurdjevic
Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.
