Economists fear October’s lower-than-expected rate hike could cause the Reserve Bank of Australia (RBA) to prolong the tightening cycle, ultimately pushing rates higher and reducing demand for goods and services. .
Some economists revised their peak rate forecasts after the RBA raised its latest official cash rate by 0.25%.
ANZ Bank economists now forecast cash rates to peak at 3.6% in May 2023, 25 basis points higher than previous forecasts.
They expect the RBA to extend its rate hike cycle and potentially push cash rates higher than market expectations.
“The slowing pace of rate hikes raises the risk that demand remains too strong and rates will need to be higher than previously expected. [consumer] Sentiment is initially boosted by RBA easing,” said an ANZ economist. David Plank said.
Meanwhile, Australia’s four largest banks were quick to inform customers of their price increases, with Westpac being the first bank to announce new rates for variable mortgages and savings products on 18 October.
Commonwealth Bank, National Australia Bank and ANZ followed suit, raising rates by 0.25% from 14th October.
At its October 5 board meeting, the RBA predicted inflation would continue to rise in 2022 and warned of further rate hikes.
JP Morgan analyst Tom Kennedy said the RBA is unlikely to return to 0.5% gains unless third-quarter inflation is significantly higher than expected.
“In our view, inflation remains the main driver of short-term monetary policy as the focus is on the consumer price index going forward,” Kennedy said.
Meanwhile, the Australian Industry Group welcomed the RBA’s change in tightening policy.
“This month’s decline of a quarter of a percentage point indicates that the Reserve Bank is aware of the risks of going too far,” said Ines Willocks, president of Ai Group.
Consumer sentiment worsens in the face of rate hikes
Consumer sentiment deteriorated as interest rates and inflation continued to rise, report ANZ–Roy Morgan showed consumer confidence fell 2.6% in the week ending 2nd October.
Financial Services Minister Stephen Jones said the federal government was allocating its budget under difficult circumstances and was concerned about the impact inflation would have on household budgets.
“We know the independent Reserve Bank has a strategy to bring them down, and that’s what’s behind the rate hikes,” he said.
“But as a government we must focus on not making the situation worse and we need to have a short-term strategy.”