SYDNEY : Australia’s major banks are lifting their forecasts for interest rates in the wake of a decidedly hawkish turn in central bank messaging, and despite some downward surprises on wages and jobs data in recent weeks.
Westpac on Friday became the latest to revise up its expected peak for rates by a quarter point to 4.10 per cent, tipping quarter-point hikes in March, April and May.
Rates are already at a decade-high of 3.35 per cent, but the Reserve Bank of Australia (RBA) was still warning that at least two more hikes would likely be needed to be sure of taming inflation, which has persistently surprised on the high side.
Economists at NAB and ANZ were already up at 4.1 per cent, leaving CBA as the lone dove at 3.85 per cent.
All were trailing the market, which had priced in 4.1 per cent two weeks ago and was now flirting with the chance of a 4.35 per cent peak, in part reflecting rising expectations for U.S. rates following a run of strong data there.
Yet, recent Australian data has been less robust with employment and wages both surprising on the downside. The wage outcome in particular could help temper RBA concerns that high inflation would morph into a damaging price-wage spiral.
“By the time of the June meeting, we expect that there will be credible evidence that demand is slowing, labour markets are easing and risks of a wage/price spiral have receded,” Westpac chief economist Bill Evans said.
“Further out, the next move is likely to be a rate cut beginning in the March quarter 2024,” he added.
Felicity Emmett, a senior economist at ANZ, suspects core inflation will prove stickier than hoped after surprising with a broad-based jump to 6.9 per cent in the December quarter.
“This stickiness underpins our ‘higher for longer’ view on rates, and we expect the RBA will hold the cash rate at 4.1 per cent until late 2024,” Emmett said.
