NAB has updated its interest rate forecasts to include four rate rises in 2022, followed by a more gradual hike path by the RBA in 2023 and 2024.
Like Westpac, NAB now expects that the first rate rise will take place in June.
“Strong recent activity data, including NAB’s business surveys, elevated job vacancies and last month’s labour force data suggest labour demand remains very strong, while wages are still expected to strengthen gradually,” NAB said.
“We also expect consecutive strong inflation prints in the near term.”
The cash rate is then predicted to reach 1.00 per cent by year’s end following hikes in July, August and November.
NAB said that the RBA would move gradually as it assesses the impacts of the initial hikes on households and businesses, while monitoring wage growth and supply-side pressures.
In 2023, three rate rises of 25 basis points are expected to take place while a further two rises are predicted for 2024, which would result in the cash rate reaching 2.25 per cent.
“This rates profile would be consistent with continuing growth in Australia’s economy, which we expect to slow from the current pace to around trend,” the bank said.
“It sees the unemployment rate settling at a level consistent with full employment and inflation returning to the middle of the target band over time.”
NAB noted that the market is currently pricing in a much more rapid rise than expected with rates rising above 2 per cent before the end of the year and above 3 per cent by mid 2023.
“Such a rapid and sustained increase in rates would likely be justified by ongoing above trend growth, unemployment falling and persisting at a substantially lower level (~3 per cent) and little correction in prices as supply chains recover, which could see a stronger rise in inflation expectations feed back into the wage bargaining process,” NAB said.
“While such a scenario is plausible, for now, it does not appear to be the most likely path forward.”
The bank also drew attention to RBA governor Philip Lowe’s statement on Tuesday that highlighted “important additional evidence” would become available in the coming months.
This includes the first quarter readings for the consumer price index (CPI) in April, the wage price index (WPI) in May and the national accounts in June in addition to two labour force releases.
“We expect these data will show strong growth, unemployment below 4 per cent, strengthening wage growth and core inflation nearing 4 per cent year on year,” the bank said.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
