Rerserve Bank of Australia to start tightening in early 2023: economists

[BENGALURU] The Reserve Bank of Australia (RBA) is expected to raise interest rates in early 2023, and possibly sooner, according to a Reuters poll of economists, who brought forward their rate hike expectations for the second straight month.

Against a backdrop of rising inflation in Australia and around the world, the RBA is now predicted to lift its cash rate from a record low 0.10 per cent in the first quarter of 2023.

That's sooner than the second quarter of 2023 forecast in a poll taken almost a month ago, while in a survey taken only two months ago there was no consensus for any rate rise in 2023.

A small majority, 16 of 25 economists, expected at least one rate hike by the end of the first quarter of 2023, compared with 11 of 25 economists in the previous poll.

Economists in the Nov 29-Dec 2 poll expect a second rate hike in the second quarter of 2023 of 25 basis points to 0.50 per cent.

The cash rate is then projected to rise to 0.75 per cent in the final quarter of 2023.

All 34 economists expected the cash rate, to stay at 0.10 per cent at the Dec 7 meeting.

Markets are much more aggressive, fully pricing in a first rate hike as early as July next year.

"We forecast a first RBA rate hike in Q4 of 2022 and think the risk around that is for an even-sooner move. I think the RBA's inflation forecasts are too low and Governor Lowe will be forced to take a hawkish pivot over coming months," said Andrew Ticehurst, senior economist at Nomura.

In the statement following its November meeting, the RBA blamed higher energy prices and global supply chain disruptions for the surge in inflation and said it expected core inflation to pick up gradually.

But a spike in core inflation prompted the central bank to abandon its projection of no rate hikes until 2024.

The RBA's latest forecasts show core inflation reaching 2.5 per cent and wage growth at 3 per cent over 2023, essential parameters to be met before it starts raising rates.

However, those levels could be touched earlier, as wage growth picked up 2.2 per cent in the year to September, a sharp rise from 1.7 per cent in the June quarter.

"The key thing for them is still wage growth. If wage growth doesn't pick up then they can't conclude that they will meet their inflation target sustainably over several years," said Marcel Thieliant, senior Australia & New Zealand economist at Capital Economics.

The RBA has stayed mostly quiet on soaring house price inflation, even as one of its closest peers, the Reserve Bank of New Zealand, has raised interest rates twice already this year taking aim at a blazing housing market.

A recent Reuters survey showed house prices in Australia will rise a further 6 per cent next year, making affordability even worse, especially for first-time buyers.

REUTERS