NAB has revised its rate hike forecast and now expects the cash rate to hit 2.35 per cent by November before peaking at 2.6 per cent in February. This, it however cautioned, is contingent on global inflation pressures easing alongside moderating global demand.
Much like its peers, the big four bank expects the Reserve Bank of Australia (RBA) to lift rates by another 50 basis points (bps) in August, followed by 25-bp increases in September, November and February.
“The rapid increase in rates and higher prices faced by households will begin to moderate consumer demand and we now see below-trend GDP growth of 1.8 per cent in 2023 and 2024,” the big four said.
NAB noted it sees inflation peaking in both headline and trimmed-mean terms in Q4 at 7.2 per cent and 5.4 per cent, respectively. Inflation, it believes, will then ease in 2023 as growth slows globally and the impact of supply shocks begin to wane.
High inflation in the near-term, it warned, risks a more material rise in inflation expectations and potentially the need to move more quickly or to a more restrictive stance should these expectations begin to feed back into the wage-bargaining process.
Earlier this month, economists widely agreed that the official interest rate would rise to 1.85 per cent in August, following a third consecutive 0.5 per cent increase.
Speaking to InvestorDaily at the time, AMP’s Shane Oliver said that more gradual moves would then bring the rate to 2.1 per cent by year end.
The chief economist expects a peak of around 2.5 per cent in the first half of next year, ahead of rate cuts in the second half of 2023.
“The bottom line is that RBA monetary tightening continues to appear to be getting traction earlier than would normally occur in an interest rate tightening cycle. All of which will start to take pressure off inflation and limit the amount by which the RBA will ultimately need to raise the cash rate by,” Dr Oliver said.
ANZ too is backing a 50-bp lift in August, while its year-end forecast sits at a more moderate 2.35 per cent.
“Job vacancies and ANZ job ads indicate the labour market is still tightening, increasing the urgency of the RBA’s need to get to at least neutral,” said ANZ economist David Plank last week.
RBA confident it can chart inflation towards target
The RBA has previously assured that it can chart a path back to at-target inflation, indicating just last week that “inflation is forecast to peak later this year and then decline back towards the 2 to 3 per cent range next year”.
NAB, however, explained that much of that profile depends on an easing of global inflation pressures and inflation expectations remaining “well-anchored”, as well as the response of wages growth at low levels of unemployment.
“With inflation indicators starting to moderate, we are hopeful global inflation pressures will indeed begin to ease. If they don’t rates will peak higher,” NAB said.
The banks also cautioned that a more aggressive tightening by the major overseas central banks could lead to downwards pressure on the dollar, adding further pressure on imported inflation in Australia.
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.
