‘Green lights’ for a March rate hike
Yesterday’s 0.25% rate hike is unlikely to be the last with commentators forecasting one to take place next month.
Rates were raised by 0.25% from 3.1% to 3.35% yesterday, the ninth hike since May 2022.
In his statement, Reserve Bank of Australia (RBA) governor Phil Lowe indicated there would likely be further rate rises later this year.
“The board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary,” he said.
Matt Simpson, senior market analyst at City Index, said: “The two key words here are ‘increases’ and ‘months’, as it implies more than one hike over the coming months. And with rates at 3.35% it means the market pricing and consensus among economists for a terminal rate of 3.6% may not be correct.
“Given that the employment situation remains tight, inflation is higher than they expected and ‘strong domestic demand is adding to inflationary pressures’, we have several green lights for a hike in March and perhaps in May.”
Paul Bloxham, chief economist for Australia at HSBC, said: “Our central case has another 25bp hike in March and that by April the RBA will choose to pause. We then expect the RBA's narrative to shift to something along the lines of stating that although inflation is still too high, the economy is moving in the right direction for delivering the needed disinflation”.
“We think it is likely the RBA will continue to raise rates at coming meetings given the level of inflation in the economy and ongoing tightness in the labour market,” said Harvey Bradley, portfolio manager at Insight Investment.
“However, their recent commentary has clearly signalled a desire to balance the growth and inflation outlook from here and should the activity data continue to roll over it is likely they will pause sooner rather than later.”
AUTHOR
Laura Dew
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