Markets brace for first RBA hike of 2023
Markets are pricing in a 25bp hike to the cash rate from the Reserve Bank of Australia (RBA), when its monetary policy committee meets later today.
This would take the official cash rate to 3.35% — the highest since September 2012.
The hikes aimed to ease inflationary pressures, which had persisted in Australia since the start of 2022 — prompting the RBA to commence the tightening cycle in May.
According to Scott Solomon, associate portfolio manager at T. Rowe Price, the RBA was likely to action two hikes this year before pausing the cycle ahead of peer central banks.
“What we are confident of is the terminal rate will be much lower than in the US where the Fed will pause somewhere around 5%.
“The two-year, 10-year (2s10s) Treasury yield curve slope also demonstrates that the near-term policy outlook is not tight relative to the longer-term outlook as the curve slope is positive in Australia but deeply negative in the US.”
But for AMP Capital chief economist Shane Oliver, the RBA should consider holding off on any additional hikes.
He said there remained a “strong case” for the RBA to pause the cycle to “allow for the lagged impact of rate hikes to work” and to avoid “unnecessarily knocking the economy into recession”.
“…We think they should pause in February, particularly given the weakness in housing indicators and consumer confidence and early signs of weakness in retail sales and inflation pressures,” he observed.
However, Oliver conceded stronger than anticipated inflation data over the December quarter would reinforce the RBA’s “inflation fighting credentials”.
“Given the rise in underlying inflation, a 0.4% or 0.5% hike is possible, but its unlikely as the RBA is likely to balance the inflation data against the signs that its rate hikes are getting traction and would regard a bigger move as overkill,” he said.
“The RBA will probably maintain its tightening bias but note again that it’s not on a pre-set course leaving open a possible pause.”
Amid signs inflation had passed its peak and indicators pointing to a slowdown in economic growth, Oliver forecast a terminal cash rate of 3.35%.
AUTHOR
Charbel Kadib
Recommended for you
The volume that financial advisers have invested in private credit funds could be among disclosures that providers have to make to ASIC amid a regulatory crackdown on private markets.
Platinum Asset Management has appointed Northern Trust to provide asset servicing solutions for their $11 billion Australian funds.
A leading consultancy believes asset managers will be reluctant to expand overseas in 2025 as high distribution costs blow out potential benefits, but this is providing tailwinds for Australian third-party distributors.
Three of the largest ETF providers reported net inflow increases of more than 100 per cent during 2024, as Betashares admits it “underestimated” the scale of annual inflows the industry would see.
