One of Australia’s biggest banks expects the Reserve Bank to hike interest rates three times in quick succession, taking the cash rate to pre-pandemic levels by Christmas, as the economy picks up.
The National Bank of Australia also warned it saw a further six interest rate hikes coming off RBA in the two years after 2022 to reach a 2.25 per cent cash rate target by the end of 2024.
NAB changed its outlook on interest rates as the economy continues to “outperform our expections” with strong domestic forecasts, including unemployment falling below 4 per cent this month and 3.5 per cent in the second half of the year.
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“We now see the first RBA rate rise occurring in August (15bps) with further increases in September (25bps) and November (25bps),” the NAB Economics report said.
“This will see the cash rate target back to pre-pandemic levels of 0.75 per cent by the end of 2022.”
And it said as RBA bond holdings matured “we see a further six hikes over two years – which sees the cash rate around 2.25 per cent by the end of 2024”.
The outlook was in contrast to the
The Commonwealth Bank’s Economic Insights team was more conservative, expecting “a shallow tightening cycle ahead”.
“We expect the RBA’s tightening cycle to commence in June,” the CBA global economic and markets research paper said. “We expect the RBA to lift the cash rate to 1.25 per cent by Q1 23 and hold it there over the rest of our forecast horizon which extends to end-2023”.
It too believed the RBA would start “normalising” the cas rate this year.
NAB said while Omicron hit hard in January, the impact on consumption and the labour market was shortlived with the economy now overperforming.
NAB believed core inflation would to go to 3.75 per cent by mid-year – compared to the RBA’s 3.25 per cent forecast.
“We expect the RBA will continue to gradually normalise policy through 2023 and 2024, assessing financial conditions in real time as the TFF (term funding facility for authorised deposit-taking institutions) ends and RBA bond holdings begin to mature.”
The report said “the RBA is unlikely to reinvest its bond holdings as they mature, instead allowing maturities to roll off the balance sheet in 2022 and subsequent years, subject to economic conditions remaining favourable”.
The report comes as NAB announced that over 1,000 customers and colleagues had been given $1,000 emergency grants in the wake of flooding devastation across Queensland and New South Wales, worth more than $1.2m.
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