Andrew Ticehurst, senior economist at Nomura, said that after adding 2.75 percentage points to the spot rate since May, taking it from 0.1% to 2.85%, the market was heading for an “environment fine adjustment”.
Headline inflation in the United States (which excludes fuel and food) reached 7.7% on an annual basiswhich was below expectations of 7.9%, down from 8.2% in September and the lowest reading since January.
But while low inflation in the United States depressed market prices, the shock of 7.3% annual inflation in Australia in the September quarter prompted many economists to revise their forecasts.
Jarden chief economist Carlos Cacho updated his peak cash rate forecast from 3.1% in December to 3.5% by the middle of next year.
“[That followed] September quarter CPI printing larger than expected and additional risk to inflation in 2023 given the expected rise in energy prices and the emergence of upward pressure on rents “, did he declare.
Westpac and ANZ both raised their maximum outlook to 3.85%, while the NAB expects 3.6% and the Commonwealth Bank 3.1%.
JPMorgan points to a peak of 3.6%, but not before the start of 2024. Chief economist Ben Jarman said the RBA will soon shut down as advised by Deputy Governor Michele Bullock, but persistent high inflation would force the central bank to start raising rates again in the second. half of 2023.
“We see the optimal policy path as holding back some tightening and continuing to offer a one-month option to do more if the data surprises dramatically to the upside,” Jarman said.
At the upper end of expectations, Judo Bank economic adviser Warren Hogan predicts a peak rate of 4.5% by December 2024.
“An RBA pause is inevitable, but that does not mean the end of the tightening cycle. There is no doubt that stress is penetrating the financial system and even parts of the real economy,” Hogan said.
“Unfortunately, some financial stress will go hand in hand with the adjustments needed to get us back on a ‘balanced keel’.”
Despite the upward shift among many forecasters, a solid rump – six of 24 respondents – believe the RBA will stop at 3.1% next month.
“While inflation is higher than expected; growth is weaker and the risks for 2023 are strongly on the downside. These cancel each other out globally,” said independent economist Stephen Koukoulas.
“The RBA doesn’t want to have its fingerprints on an Australian recession and the only risk of a recession is if the RBA tightens too much.”
Commonwealth Bank’s Australian economics director Gareth Aird said recent communication from the RBA indicated the bank was preparing to take a break.
“After an intentional pause, data should prove in 2023 that there is no need for further rate hikes,” Aird said.
Even ahead of the latest inflation data from the United States, financial markets have lowered their expectations for interest rate hikes next year following a dovish attitude comments from RBA Deputy Governor Michele Bullock on Thursday.
Appearing before a Senate post-budget estimates committee, Ms Bullock said the central bank was getting to the point where “maybe there could be an opportunity to sit and wait and watch a bit”.