Industry experts are expecting further interest rate hikes to as high as 3.85% followed by a pause for its impact to feed through the economy.
According to HSBC Global Research, consumer sentiment had fallen to its lowest level since the pandemic and the 1990s recession while the wage price index showed slow gradual growth.
The expectation was that “local growth will slow further over coming months, pressure in the jobs market will start to ease, the global growth backdrop will worsen, and global disinflation will become clearer”.
It expected rate hikes to rise by a further 25 basis points in December and pause by February 2023 while the Reserve Bank of Australia (RBA) remained on hold to observe the inflation problem.
Meanwhile, research from Westpac expected the cash rate to be continually rise by 25 basis points till at least May 2023.
“Regarding the current stance of policy, Governor Lowe reiterated that the RBA is not on a pre–set path, leaving the door open to pause or return to 50bps moves,” it stated in its weekly report for the end of November.
“As discussed by chief economist Bill Evans, given the strength of the labour market, as evidenced by the fall in the unemployment rate to a 50–year low (3.4% in October) and the strength of private sector wages growth (3.4%yr in September), we expect the cash rate to be increased by 25bps at the December, February, March and May meetings to a peak of 3.85% in May 2023.”
Frank Uhlenbruch, investment strategist in the Janus Henderson Australian Fixed Interest team, also expected economic growth to halve over 2023 to 1.5%.
“With few signs yet of a significant slowing in activity and the risks that the latest round of inflation pulses end up being recycled into a higher core inflation rate via pass-through effects, the RBA has little choice but to tighten monetary conditions further,” he observed.
He held that the cash rate could peak at a moderately restrictive 3.6% in mid-2023.
“That would make the current tightening cycle the largest and fastest in the monetary policy inflation targeting era. As we expect to see growth and inflation to decelerate over 2023, the door opens for the RBA to take its foot off the monetary brakes over 2024 and begin bringing monetary settings back towards more neutral levels,” he said.
