What’s Ahead For Interest Rates and Inflation?
Last updated on October 11th, 2022
Last month the RBA again lifted interest rates in their fifth consecutive rise in as many months. RBA governor Philip Lowe suggested that the pace of interest rate hikes should slow from here, but there are still more to come and future decisions will be influenced by what happens with inflation. Based on the latest predictions, the cash rate in Australia is expected to climb to 3.35 per cent.
Dr Lowe said that at the current 2.35 per cent, the cash rate is now nearer, although likely still below, a more “neutral” level which will neither stimulate the economy nor slow it down. Over the longer term, the cash rate “should at least average the mid-point of the inflation target”, which is 2.5 per cent, if not higher, Dr Lowe said.
Inflation should come back down towards 4 per cent by the close of 2023, after peaking at close to 8 per cent. Dr Lowe remains hopeful that worldwide factors that have underpinned this year’s surge in consumer prices will start to wane. “What we are seeing in global markets is an increase in supply and a reduction in demand for goods.”
Forecasts From The Big Four Banks:
Here are the latest interest rate forecasts from economists at each of the big four banks of Australia.
• ANZ: predicts a 50 basis point (bp) hike in October to 2.85%, followed by a 25bp hike in November to 3.10% and another 25bp increase in December to 3.35%.
• CBA: predicts a 25bp hike in October to 2.60%, then a likely 25bp hike in November to 2.85%, followed by a pause for at least a few months.
• NAB: predicts two further 25bp increases before the end of year (to 2.85%), followed by a pause throughout next year.
• Westpac: predicts a series of 25bp increases from October to February (to 3.35%), and expects the RBA to hold throughout next year before cutting rates in 2024.
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