Australia’s central bank will raise interest rates by 40 basis points next month and conclude its tightening cycle at 3% in November as it diverges from global peers, says Alex Joiner, Chief Economist at IFM, as quoted by Bloomberg.
His forecast is more aggressive than the quarter-percentage-point hike predicted by most economists at the Reserve Bank’s Oct. 4 meeting. Yet it remains in line with Governor Philip Lowe’s signal that the RBA may scale back the size of future increases following four consecutive half-point hikes.
“I hope they go 40 just to get us on to a 25-basis-point level which is more normal,” “They’re sort of making noises around the economy that are certainly not as hawkish as other central banks.” said Joiner, referring to an anomaly created during the pandemic when the RBA cut to a record low 0.1%.
Lowe pointed out last week that as Australia’s key rate pushes higher, the case for increases in smaller increments becomes stronger. That contrasts with Federal Reserve Chair Jerome Powell, who has indicated a potential third straight three-quarter point hike later this month.
Joiner also highlighted the RBA’s recent rhetoric around the need to keep the economy on “an even keel,” compared with global policy makers’ warnings that inflation must be defeated even at the cost of economic growth.
Joiner expects the RBA will undertake a final quarter-point hike in November and then hold rates at 3% for an “extended period.” He says the RBA doesn’t need to see inflation back inside its 2-3% target, just on its way back down, and expects Lowe will begin a gradual easing cycle late next year.
Australia’s inflation hit 6.1% in the second quarter and is seen climbing to almost 8% late this year before it begins to decelerate in 2023.
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