One of Australia’s big four banks has tipped the cash rate will increase four times before the end of the year.
Following the Reserve Bank of Australia’s decision to again hold the cash rate at 0.1 per cent on Tuesday, the ANZ released a statement tipping the cash rate would hit 1 per cent by the end of 2022.
ANZ Head of Australian economics, and author of the Quick Reaction Australia statement, David Plank, said the bank expected the first rate rise to come in June.
“We look for the RBA to tighten by 15 basis points in June, with follow-up with 25 basis point rate hikes in July and August,” he said.
“We see another 25 basis points in November, which will take the cash rate target to 1 per cent by the end of 2022.”
Previously the ANZ had forecast the cash rate to reach 0.75 per cent by the end of 2022.
But the bank doesn’t think the rate hikes will stop this year.
“We expect 25 basis point rate hikes in each quarter of 2023, taking the cash rate to 2 per cent at the end of 2023,” Mr Plank said.
“At that point we think the RBA will pause for an extended period, not least because by then the Fed will have tightened materially and the US and global economies may be showing signs of slowing.”
Mr Plank said he still believed the cash rate would eventually rise to 3 per cent or more but not until “some time” after 2023.
The driver for the bank’s change in forecast is the removal of the word “patient” from RBA Governor Dr Philip Lowe’s April monetary policy statement.
Mr Plank said it was telling that in the last paragraph of its April statement the RBA Board noted inflation had picked up, which provided the rationale for the Board dropping the reference to being “patient” as in previous statements.
He said the RBA’s use of the phrase “over the coming months” in connection to analysis of inflation and labour cost data due to be released in May, meant it was unlikely to have that month in mind to implement the first rate rise since November 2010.
“We’ve gone with a June start rather than May because the RBA specifically states that, ‘over coming months, important additional evidence will be available to the Board on both inflation and the evolution of labour costs’,” Mr Plank said.
“While the Board will have the inflation data in time for the May meeting, it won’t have new information on labour costs until it meets in June.”
But Mr Plank said a May rate hike could not be 100 per cent ruled out.
“A surge in core inflation in the Q1 CPI could leave the RBA thinking it has little choice but to move,” he said.
Mr Plank said the May Federal Election provided a “complication” for a May rate hike and he said another factor leaning towards a June rise was history repeating itself.
“One option is for the RBA to make the case for a rate hike in its May statement and then deliver it in June when the labour market data provides more confirmation,” he said.
“This was the template the RBA followed in 2019 when it cut the cash rate at its June meeting, having prepared the way in its May statement ahead of the 2019 Federal Election.”