The Commonwealth Bank of Australia (CBA) thinks the Reserve Bank (RBA) will stop hiking interest rates much sooner than expected.
CBA economist Kristina Clifton said the RBA would hike rates again next month by 0.25 per cent - taking the official interest rate to 3.1 per cent - and then hold.
Clifton said CBA was expecting Aussies would tighten spending over the summer months, which would cause the RBA to hold rates at 3.1 per cent.
“We expect that slower economic data over the summer months will keep the RBA on hold after a final 25-basis-point increase to 3.1 per cent in December 2022,” Clifton said in a note.
Clifton made the call after listening to RBA assistant governor Michele Bullock make a speech at the annual Australian Business Economists dinner.
In her speech, Bullock said the central bank was trying to toe the line between bringing inflation under control but also not restraining the labour market.
“Perhaps most importantly, Bullock noted that the RBA are trying to preserve some of the gains made in the labour market in recent years, while at the same time reducing inflation to target ‘over time’,” Clifton said.
“She noted that the RBA could increase interest rates faster and ‘crunch the economy’ and bring down inflation quickly, but have instead chosen to try to limit the extent of the lift in the unemployment rate.”
The RBA wants to see spending come under control. Less spending will start to bring prices down and, therefore, inflation. This is why the central bank has been lifting interest rates.
Households are feeling the pinch from higher mortgage repayments. A borrower on the average variable rate with a loan of $500,000 has seen their repayments increase by around $10,000 a year since the first RBA hike in May.