CommBank anticipates that the Reserve Bank of Australia will move the needle on November 2013’s cash rate.
The latest Economic Insights report of CommBank indicates strong economic results in next year’s economy due to “exceptional” vaccine use, stable labour market, and the reopenings for NSW and Victoria.
“There is still a lot of uncertainty about the future, as the world moves from a COVID-19 pandemic world to a global endemic virus,” CommBank reported.
“But, it is our belief that this will prove to be less stressful than we initially expected. We have felt more at ease thanks to the fact that we are amongst the most successful vaccine users in the world.
Rate reductions available in a variety of ways
CommBank has reverted to its preDelta-infected call for the RBA to raise the cash rate starting November 2022.
According to the bank’s statement, they planned a 15-bp rate increase in November 2022. This would increase the cash rate to 0.2%5.
In December 2022, the cash rate will increase by 25bps
CommBank said three further 25bps hikes are expected over the next two years — the first two would happen at around the first and second quarter of 2023. This would mean a rise of the cash rate up to 1.25% in the third quarter 2024.
According to the bank, “Overall it will be a shallow tightening circle due to the high household debt.”
This is far from what the RBA sees. The RBA insists that the cash rates will not change before 2024, unless inflation rates are met and wages grow is achieved.
Economic indicators that indicate strong economic performance
The most recent report from CommBank indicates positive outlooks for many economic indicators, including household spending and inflation.
On the household spending front, it said that the earlier-than-expected reopening of lockdown-stricken states will contribute strongly to the growth in household expenditure.
After a contraction of 6.8% in Q3 21, real household spending is expected to increase by 5.9% for Q421. The bank said that they expect strong household spending growth in 2022 and are planning for further expansion.
For the next year, a strong increase in spending will result in a positive outlook for wages and unemployment.
“We anticipate the unemployment rate to reach 4.7% by the year 2021,” CommBank stated. Strong employment growth in 2022 should result in a decline of 4.0% in unemployment rate by 2022,” CommBank stated.
CommBank predicts that the underlying inflation rate will be 2.5% by mid-2022. This is close to the RBA’s 2% to 3% target.
Westpac’s Cash Rate Call
Westpac maintained its belief that the RBA would only increase rates in the first quarter of 2023.
Bill Evans is Westpac’s chief economic economist. He stated that the February 2023 rate hike would be a 15bps increase. This will raise the cash rate by 0.25 percent.
“If we were to see such changes in the Bank’s forecasts in the November Statement on Monetary Policy the issue arises as to whether the Governor would be prepared to alter the guidance, ‘The central scenario for the economy is that this condition will not be met before 2024.’,” Mr Evans said.
“I would strongly applaud acceptance that the Governor now expects that the conditions necessary to begin the move away from the emergency policy settings will be achieved earlier than previously expected.”