Cash rate to pass 3% by November: ANZ

Under this revised outlook, ANZ has said that the Reserve Bank (RBA) will introduce four-consecutive, 50-basis point (bp) bumps between now and November’s cash rate decision.

The cash rate will remain at this figure for the remainder of the year as well as through 2023 and 2024. 

Last month, the big four bank said that it expected the cash rate to be within the 2 to 3 per cent range by the year’s end.

This latest update brings ANZ’s expectation of a 3.35 per cent cash rate more than 12 months earlier from previous forecasts. 

Justifying this new prediction, according to the bank’s head of Australian economics David Plank, is the need to target a restrictive setting, partly to address a stronger-than-expected labour market. 

According to the Australian Bureau of Statistics (ABS), unemployment dropped to 3.5 per cent during the month of June – its lowest figure since 1974. 

Additional ABS data notes there were over 480,000 job vacancies in May – a year-on-year increase of over 29 per cent.

“The large stock of vacancies suggests that it will take a considerable slowdown in the economy for underutilisation not to fall further,” Mr Plank’s paper read. 

“Our longstanding forecast has been for unemployment to drop to 3.3 per cent in the later part of 2022.”

ANZ’s latest prediction notes that the RBA will “want confirmation that it is not moving well beyond neutral, so [it] will take advantage of its more frequent meetings by not jumping too far at any one time”.

The bank also said that a lift of more than 50 bps during August and September are “very real possibility”, with the central bank potentially aiming to round the cash rate target to 25 bps. 

“The faster move to a restrictive rate setting will bring forward the point at which the economy slows below trend. It also suggests house prices will fall by more than the 15 per cent or so we currently anticipate to the end of 2023,” the forecast stated. 

Last month, ANZ tipped this loss would be 12 per cent. 

The major bank also said that this doesn’t necessarily equate to a “hard landing” for the economy, with this forecast seeing the repayment-to-income ratio “peak below the level reached in 2008”.

Further, ANZ has said it also predicts that wage growth will grow over the period, being “quite persistent even as the economy slows”, which in turn will prevent household consumption from “slowing too sharply”.  

Last week, both NAB and Westpac updated their forecasts, with the two banks agreeing that, by February 2023, the cash rate will be 2.6 per cent.

[Related: Housing key driver of incoming inflation: ANZ]