Economists at NAB are expecting the cash rate to reach a peak of "at least" 4.1%, which it would likely hit by July.

After taking a pause in April, the Reserve Bank of Australia (RBA) increased the cash rate for the 11th time since the uptrend started in May 2022.

According to NAB Group, there are strong indicators that the central bank still has fuel to drive the cash rate up to hit at least 4.1%, which was in line with the February forecast. 

However, there’s a possibility of the RBA choosing to hold off on further moves until August to fully assess the impacts of the previous rate hikes on inflation and wages. By then, the RBA will already have an updated consumer price index for the second quarter of the year.

Still, the 4.1% peak in the cash rate is based on the following:

  • Inflation remaining well above target in the near term.
  • Economy maintaining resilience
  • Tight labour market supporting a pickup in wage growth

NAB Group chief economist Alan Oster said inflation is a key consideration, given that the recent communications released by the central bank indicating expectations for inflation to return to the 2% to 3% target only by June 2025.

“Achieving further progress towards the target in 2024 and 2025 will depend on the services side where the outlook for wages growth, inflation expectations and the resilience of demand will be increasingly important,” he said.

With regards to the economy, Mr Oster said strong population growth and rebounding services consumption remained supportive despite the pressures from higher interest rates and inflation.

“This resilience has also been reflected in the strength of labour demand which has seen strong employment growth, and the unemployment rate hover at very low levels since mid 2022,” he said.

“This is supporting incomes with hourly wage growth already running at over 3% in 2022 and set to strengthen this year, with additional wage pressure likely to come from ongoing tightness in the labour market as well as the next minimum and award wage increase.”

With all things considered, Mr Oster said the impact of higher rates on household budgets and the wider economy would lead to a slowdown in the second half of 2023 and into 2024, with the annual GDP growth hitting 1% as unemployment rate rise.

“We continue to expect the cash rate to return to a more neutral rate as this slowdown takes hold,” he said.

“Our view is that neutral should involve a small positive real rate — that could be a cash rate of around 3% in nominal terms and we expect to see the RBA cutting to around this level from mid-2024.”

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Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of .