After yesterday’s inflation figures, which showed a major jump in the cost of living, CBA, ANZ, NAB and Westpac have changed their forecasts for when the Reserve Bank of Australia (RBA) will lift the cash rate.
Things have changed rapidly for the RBA. Its previous stance was that it would be “patient” and rates were not likely to rise until 2023.
Now, experts are predicting they could hike as soon as Tuesday next week.
But not all the big banks agree with each other about when the RBA will hike because the central bank can be hard to predict.
There is a subtlety in the language RBA governor Philip Lowe uses that can be hard to decipher - but he has shown a swing towards hiking rates this year.
This is when the big banks are predicting the first RBA hike:
CBA: 0.15 per cent hike in June
Westpac: 0.4 per cent hike in June
ANZ: 0.15 per cent hike in May
NAB: 0.15 per cent hike in May
So, the major banks don’t agree on when the first hike will happen, or by how much, and that is due to a number of factors.
Here’s the thought process behind each call.
ANZ rate call
ANZ believes the RBA will hike rates by 0.15 per cent next week at the May board meeting. This would bring the cash rate to 0.25 per cent - up from 0.1 per cent.
“Inflation pressures have momentum and have broadened. A cash rate target of 0.1% is inappropriate against this backdrop,” ANZ’s economics team said.
“We don’t think the RBA needs to wait for more data on wages, given that its own liaison program indicates that ‘wages growth had continued to pick up in the March quarter’.
ANZ believes the RBA will hike rates next week by 0.15 per cent followed by an increase of 0.25 per cent in June, taking the cash rate to 0.5 per cent.
NAB rate call
NAB also believes the RBA will hike rates next week by 0.15 per cent and a further 0.25 per cent increase in June, July, August and November.
This would take the cash rate target to 1.25 per cent by the end of the year.
“The [most recent inflation data] exceeded NAB’s expectations and was well above the RBA’s most recent February forecasts,” NAB said.
“Temporary factors continue to play a role in stronger inflation outcomes, but underlying inflation is likely to remain elevated into Q2 alongside further falls in the unemployment rate and strengthening wages growth.”
CBA rate call
CBA is taking the most cautious approach, predicting a rise of 0.15 per cent in June.
CBA’s head of Australian economics Gareth Aird said the bank believes the RBA should raise rates next week but just doesn't expect that it will.
“At this juncture we will stick with our call that the first move in the cash rate will be 15bp in June to 0.25 per cent followed by another 25bp increase in the cash rate at the July Board meeting,” Aird said.
“If the RBA lifts the cash rate at the May Board meeting next week they will have reneged on what they said just last week – namely that the Board agreed that it would take into account evidence on both inflation and the evolution of wages costs as it sets policy.”
Westpac rate call
Westpac has gone the furthest in thinking the RBA will hold off from increasing rates next week but then hit Aussies with a massive 0.4 per cent hike in June.
"There is considerable speculation that they'll move on May 3, but I think that's really been ruled out by the guidance that we've seen from the Reserve Bank about wanting to see data over the coming months," Westpac chief economist Bill Evans said.
"We did expect that they'd only go by 0.15 [percentage points], but now, with this much stronger inflation environment, much stronger labour market, I think the need is there to go faster than that.
"So a first move of 0.4 [percentage points], and then settle back into 0.25 [percentage point] moves in most of the months between now and the end of the year."