The Commonwealth Bank of Australia (CBA) thinks the Reserve Bank’s (RBA) aggressive interest rate hikes may be nearing the peak.
In October, CBA was the only major bank to accurately forecast the RBA’s 0.25 per cent hike, with the others predicting another 0.5 per cent lift.
CBA’s head of Australian economics, Gareth Aird, said the official cash rate, now at 2.6 per cent, was above the RBA’s “neutral” rate, meaning it was restricting economic activity.
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“The cash rate now sits in restrictive territory based on the RBA’s view that the neutral rate is around 2.5 per cent,” Aird said.
“However, the RBA’s estimate of the neutral cash rate is around 100 basis points above our estimate, so this means we believe monetary policy is now comfortably in the contractionary zone.”
The neutral interest rate is the level at which the cash rate and the economy are considered to be in equilibrium.
CBA believes the cash rate will only be hiked one more time, but by just 0.25 per cent, to reach a peak at 2.85 per cent in November.
“From that point, our central scenario has the RBA on hold as they give themselves time to assess the lagged impact of rate rises on the Australian economy,” Aird said.
However, Aird added there was still a risk of a further 0.25 per cent rate hike in December, which would take the cash rate to 3.1 per cent.
This is significantly lower than what the other major banks are expecting.
Westpac has the most dire prediction, expecting the cash rate to peak at 3.60 per cent in February 2023.
NAB is forecasting a peak at 3.10 per cent, while ANZ expects the cash rate to reach 3.35 per cent.