Westpac now stands alone sticking to its forecast of an August rate hike, despite three of the big four forecasting a June cash rate rise.

Note (08/04/22): The day after this article was published, Westpac brought forward this forecast to June.

CommBank was the first to bring forward its forecast to June, off the back of the RBA’s mid-year forecast for trimmed mean inflation.

The omission of one word in Tuesday's monetary policy statement held a lot of weight, according to ANZ's head of Australian economics David Plank.

It was 'patient'.

"We’ve [ANZ] gone with a June start rather than May because the RBA specifically states that over coming months, important additional evidence will be available to the Board on both inflation and the evolution of labour costs," Mr Plank said.

"While the Board will have the inflation data in time for the May meeting, it won’t have new information on labour costs until it meets in June."

Mr Plank says ANZ now forecasts the RBA to tighten by 15 basis points in June with a follow-up 25 basis point rate hike in July and August.

Further, another 25-basis point increase is expected in November, which will take the cash rate target to 1% by the end of 2022.

"From there we expect 25 basis point rate hikes in each quarter of 2023, taking the cash rate to 2% at the end of 2023," he said. 

NAB initially anticipated the first cash rate hike to come into effect this November, however revised its forecast last month to August.

NAB's Director of Economics Tapas Strickland said with this month’s statement the RBA clearly signalled it is contemplating lifting rates over coming months.

“NAB now sees the RBA hiking in June and we will revise the interest rate track for the remainder of the year,” Mr Strickland said.

“Households are well placed to handle the first phase of tightening that we expect this year and next, taking the cash rate to around 1.5-1.75%, but a further move to 3% or above over that timeframe as markets price is too aggressive and would place undue pressure on the household sector.”

Don’t rule out May

Mr Plank said a surge in core inflation in the first-quarter CPI could leave the RBA thinking it has little choice but to move, therefore a May rate hike should not be ruled out.

ABS quarterly inflation data revealed underlying inflation hit 2.6% in the December quarter for 2021, which is the "midpoint of the RBA’s target band".

The Federal Election is also reportedly scheduled for either 14 or 21 May, and the RBA won't want to be seen as rocking the boat.

“The timing of the May federal election is a complication,” Mr Plank said.

"One option is for the RBA to make the case for a rate hike in its May statement and then deliver it in June when the labour market data provides more confirmation."

"This was the template the RBA followed in 2019 when it cut the cash rate at its June meeting, having prepared the way in its May statement ahead of the 2019 federal election."

The last time the RBA cut the cash rate was in November 2020, and the last time it increased was November 2010.

Image by Steven Lelham via Unsplash

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