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The Reserve Bank of Australia (RBA) is set to have its March board meeting tomorrow (7 March). Following nine consecutive cash rate hikes, the big four banks have forecast that the RBA will further lift rates by another 25 basis points (bps), bringing the official cash rate to 3.6 per cent from 3.35 per cent.
Previously, the major banks forecasted the official cash rate to peak at 3.85 per cent in May; this has now been adjusted to 4.1 per cent.
NAB’s The Forward View – Australia: February 2023 report stated that rates will continue to stay at a peak of 4.1 per cent in May 2023 until the central bank begins to cut rates in early 2024.
ANZ Research’s Australian Economic Insight report published on 16 February somewhat echoes this sentiment, stating that rates won’t start easing until a 25-bp cut in November 2024, with its revised forecasting, seeing the RBA tightening by 25 bps in March, April and May.
The Commonwealth Bank of Australia (CBA) has noted that despite key domestic economic data over the past month having “largely printed softer than consensus and RBA expectations”, a change in tone or assessment of the economic outlook by the board is unlikely to change.
Westpac chief economist Bill Evans stated the most interest will be in the guidance the governor provides in his statement when the decision is announced.
Mr Evans noted that in February, the governor had changed the wording from the December statement, in which he stated “the board expects to increase rates further over the period ahead, but it is not on a pre-set course” to “The board expects that further increases in interest rates will be needed over the months ahead”.
“The term ‘not on a pre-set course’ allowed for the possibility of an imminent pause before resuming hikes later in the cycle.
“By choosing to leave that term out of the guidance, a reasonable assumption was that the board had decided to continue the steady 25 basis points per meeting before deciding on a permanent pause,” Mr Evans added.
On this same statement, CBA concluded that the RBA board had “essentially made up their mind” and intended to up the cash rate over the coming months should economic data print in line with the RBA’s updated forecasts.
The minutes from the February meeting confirmed that the RBA had adopted a change of approach, in which it was stated that the board had not considered a pause for the 7 February cash rate decision.
[RELATED: Westpac forecasts terminal cash rate at 4.1%]
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