Interest rates set to rise in Australia: RBA, Commonwealth Bank, NAB, ANZ, Westpac

Another excessive rate hike seems more likely in light of troubling global economic conditions that are pushing central banks to continue raising rates aggressively.

Some economists have revised their forecasts upwards ahead of the Reserve Bank of Australia’s October decision on spot interest rates.

The RBA said it would choose between an increase of 25 or 50 basis points when it meets next week, with the central bank seeing the bleak global outlook and consumer consumption habits as two major sources of uncertainty that would guide its decision.

Su-Lin Ong, an economist at the Royal Bank of Canada, says it will still be a close call, but is now leaning toward another 50 basis point gain.

She said central banks around the world remained hawkish, with the new UK chancellor’s “mini-budget” improving the chances of another major rate hike next month.

“With the Australian dollar falling further as global interest rate expectations are reset, adding to domestic inflationary pressures, the RBA remains under pressure to also implement an excessive rate hike,” said Ms Ong.

However, Ms. Ong says the RBA’s “neutral interest rate” — the level that won’t stimulate or deflate economic activity — is likely to be lower than its global counterparts, as households are highly indebted and many homeowners have floating-rate mortgages.

ANZ economists stick to their prediction that the RBA’s tightening cycle will end when it hits a neutral rate of 3.35 percent, but said there’s a good chance it will have to go higher.

“The RBA appears poised to slow the pace of increases, but global experience suggests more work needs to be done,” ANZ economists said.

“We expect spot rates to rise to 3.35 percent by the end of the year, but there is a growing risk that higher cash rates will be needed to curb inflation.”

Australia’s economic troubles are far from over as the Organization for Economic Co-operation and Development is dragging down Australia’s economic position.

The OECD now forecasts that real GDP will grow by 4.1 percent in 2022, 0.1 percentage points less than the June forecast and by two percent in 2023, which is 0.5 percent lower than the mid-year forecasts. done.

Core inflation in Australia is also expected to reach 5.4 percent in 2022, before falling to 4.3 percent in 2023.

The OECD’s economic outlook report showed that inflation has spread widely across many economies since the Russian invasion of Ukraine.

“The effects of the war and the ongoing impact of COVID-19 outbreaks in some parts of the world have affected growth and put additional upward pressure on prices, especially for energy and food,” the report said.

Despite the doom and gloom, consumers have regained some confidence in the economy.

The 2.1 percent rise in sentiment was the result of an increase in confidence in Australia’s economic conditions.

“Current economic conditions” were up 4.8 percent, according to ANZ-Roy Morgan’s weekly consumer confidence survey, and “future economic conditions” were up six percent.

The final score of 87.8 was the highest in four months, but was still well below the long-term monthly average of 111.9.

ANZ economist Catherine Birch said strong spending in the face of successive rate hikes has allayed fears of a sharp downturn.

A decline in inflation expectations also supported the indicator, despite motorists bracing for fuel price increases in the coming weeks when fuel taxes are reintroduced.