The Reserve Bank of Australia is set to make its penultimate monetary policy decision tomorrow, which would set the tone at how the cash-rate setting would end by 2022.

One of the factors that would dictate how high the RBA could raise rates is inflation, which surged 1.8% during the quarter, exceeding the predictions of all major banks. Given this backdrop, here’s how each major bank thinks the RBA is going to respond tomorrow.

ANZ: 25bps hike, but 50bps hike is possible

ANZ senior economist Catherine Birch said there is a chance for the RBA to increase the rates by another 50bps, bringing the cash rate to 3.10%.

“But we think the RBA will prefer to hike more frequently than shift back to 50bp,” she said.

“The minutes from the RBA Board’s October meeting indicate that there was extensive discussion about whether the size of the rate hike should be 25bps or 50bps — in a “finely balanced” decision, 25bps won out.”

Ms Birch said there continues to be expectations that higher inflation would extend into 2023, given the stronger quarterly data over the third quarter of the year.

“These broad-based, domestically driven inflationary pressures are persistent and harder for the RBA to rein in, particularly given that the overall economy is in good health with solid household spending, strong business conditions and a substantial volume of unfilled labour demand,” she said.

Ms Birch said if the RBA pushes through with a 25bps hike in November, another 25bps hike in December is likely.

The cash rate, according to ANZ’s forecast, should peak at 3.85% in May 2023.

CommBank: 25bps rate hikes for November and December

On the back of the surge in inflation over the third quarter of the year, CommBank head of Australian economics Gareth Aird said the base case would now be for the RBA to raise rates by 25bps in November and December.

“There are no two ways about it – inflation is red hot in Australia right now, as it is in many parts of the world, and we expect the RBA will respond by raising the cash rate again at the November Board meeting next week,” he said.

“Indeed our call has been that the RBA will deliver one or two more 25bp rate hikes and then pause for an extended period — we incorporate the second 25bp rate hike into our central scenario for the cash rate, which means we see the peak in the cash rate being 3.10%.”

Mr Aird said it is worth noting that the RBA’s aggressive tightening cycle — the 2.50bps rate hikes between May and October — has had no impact on the June or September quarter inflation outcomes.

“The rapid recent rate hikes and our expectation of some further modest tightening is unlikely to shift the inflation needle over the December quarter; inflation is a lagging indicator. The impact of policy tightening will impact consumer inflation in 2023,” he said.

NAB: Four 25bps rate hikes until March, with cash rate peaking at 3.6%

NAB group chief economist Alan Oster said two more 25bps rate hikes are likely this year, and two further increase in February and March to bring the cash rate to a peak of 3.6%.

“Q3 CPI release confirmed inflation has continued to escalate over recent months and the RBA is likely to revise up its peak inflation figures,” he said.

“The labour market remains very tight, consumption has held up longer than we expected, and conditions in the business survey remain strong.”

Mr Oster said amid the circumstances, the RBA will need to move monetary policy into more clearly restrictive territory to ensure inflation returns to target.

Similar to ANZ, Mr Oster said a 50bps rise in November is possible, given the inflation print.

“We expect higher interest rates to materially weigh on consumption and GDP growth in 2023 and 2024 and while we don’t expect a recession, annual growth will likely fall below 1% and unemployment rise to 4.5%,” he said.

“Slow growth, rising unemployment and easing global inflation pressures are likely to see the RBA begin to ease policy back towards a more neutral setting in 2024, with the cash rate expected to fall back below 3%.”

Westpac: 50bps hike due to surging inflation

Westpac chief economist Bill Evans said the quarterly inflation figures is enough reason for the RBA to hike the cash rate by 50bps.

“The Board should also be concerned about the unusual nature of this cycle as the economy emerges from the pandemic,” he said.

“Labour markets are uncharacteristically tight while the household sector has accumulated significant savings which can buffer higher rates. Evidence from business surveys that business conditions and capacity utilisation are remarkably strong also point to unusual resilience.”

Given the conditions, a further 25bps rate hike in December is likely, which would bring the cash rate to 3.35% by the end of 2022.

With no meeting scheduled for January there will be a two month break to provide some time to assess the cumulative impact of rapid rate increases,” Mr Evans said.

“By the time of the February meeting, the Board will have raised the cash rate by only 25bps over the previous three months since the November move – an adequate and appropriate break.”

Based on Westpac’s forecast, the cash rate would likely peak at 3.85% by March.

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