RBA, Commonwealth Bank, NAB, ANZ, Westpac will raise rates in Australia

In view of deteriorating global economic conditions, which put pressure on central banks to continue aggressively boosting interest rates, the likelihood of a further large rate hike is rising.

A number of analysts have raised their projections ahead of the Reserve Bank of Australia’s cash rate announcement in October.

The RBA stated that it will pick between a 25 or 50 basis point raise at its meeting next week, citing the dismal global outlook and consumer spending patterns as the two primary sources of uncertainty that will influence its decision.

Ahead of the Reserve Bank of Australia’s (illustrated) cash rate announcement in October, economists have revised their projections upwards.

The RBA stated that it will pick between a 25 or 50 basis point raise at its meeting next week, citing the dismal global outlook and consumer spending patterns as the two key sources of uncertainty that may influence its decision.

Su-Lin Ong, an economist with the Royal Bank of Canada, believes it will be a close call, but she is now leaning toward another 50 basis point increase.

She stated that central banks throughout the globe remained hawkish, with the new UK chancellor’s’mini-budget’ increasing the likelihood of another significant interest rate hike next month.

Ms. Ong stated, “With the Australian dollar falling further as global rate expectations are reassessed, and local inflationary pressures intensifying, the RBA is under pressure to also deliver a substantial rate hike.”

Ms. Ong asserts, however, that the RBA’s ‘neutral rate’ – the level that neither stimulates nor deflates economic activity – will likely be lower than its global equivalents due to the high level of family debt and the prevalence of variable-rate mortgages.

ANZ analysts maintained their projection that the RBA’s tightening cycle will terminate when it reaches a neutral rate of 3.35 percent, but said there’s a significant probability the neutral rate will need to be raised.

We anticipate the cash rate to rise to 3.35 percent by the end of the year, but there is an increasing possibility that a higher cash rate may be required to combat inflation. ANZ economists said

ANZ economists stated, “The RBA appears prepared to reduce the pace of rate hikes, but global history suggests more work is required.”

We anticipate the cash rate to rise to 3.35 percent by the end of the year, but there is an increasing possibility that a higher cash rate may be required to combat inflation.

The Organisation for Economic Co-operation and Development has downgraded Australia’s economic standing, indicating that the country’s economic difficulties are far from over.

The OECD now expects the real GDP to increase by 4.1% in 2022, down 0.1 percentage points from its June projections, and by 2.0% in 2023, down 0.5% from its mid-year forecasts.

The core inflation rate in Australia is projected to reach 5.4% in 2022, before decreasing to 4.3% in 2023.

Australia’s core inflation is anticipated to reach 5.4% in 2022 before decreasing to 4.3% in 2023. (pictured, sale signage outside a residential property in Sydney)

Since Russia’s invasion of Ukraine, the economic outlook report of the OECD revealed that inflation has rapidly spread throughout numerous economies.

The report stated, “The repercussions of the conflict and the ongoing implications of COVID-19 outbreaks in some regions of the world have dampened growth and exerted extra upward pressure on prices, particularly for energy and food.”

Despite the economic gloom and despair, consumers have restored some confidence.

The 2,1% increase in sentiment was driven by an increase in optimism over Australia’s economic situation.

According to ANZ-Roy Morgan’s monthly consumer confidence poll, ‘current economic circumstances’ rose 4.8%, while ‘future economic conditions’ rose 6.0%.

The final score of 87.8 was the highest in four months, but it was still significantly lower than the monthly average for the past decade of 111.9.

Catherine Birch, an economist at ANZ, stated that robust expenditure in the face of multiple rate hikes has allayed fears of a severe recession.

The indicator was also bolstered by a decline in inflation expectations, despite motorists preparing for a jump in petrol prices in the coming weeks when the fuel levy is reinstalled.