Bluestone Home Loans consultant economist Dr Andrew Wilson has dismissed the idea that the Reserve Bank of Australia (RBA) will increase the cash rate in August, stating that economic performance figures are likely to decrease over the upcoming months.
Last week (Thursday, 20 January), Westpac chief economist Bill Evans said the group’s economists are now expecting the RBA to raise the cash rate by 15 basis points in August, followed by an additional 25 basis points in October.
The banking group’s prior prediction for an increase was February 2023.
With the omicron variant sparking a decrease in spending over January – ANZ-Roy Morgan’s Consumer Confidence index seeing levels fall to their lowest result since 1992 – Westpac’s updated forecast anticipates a solid rebound in the months to follow, a faster-than-anticipated inflation rate, as well as better-than-expected wages growth and unemployment rates.
However, according to Dr Wilson, while there currently are positive trends – including the national unemployment rate dropping to 4.2 per cent, its lowest rate since August 2008 according to the Australian Bureau of Statistics – this doesn’t equate to a sooner-than-expected increase.
“The low rate [of unemployment] unsurprisingly fuelled predictions from the usual suspects of a surge in wages growth stoking higher inflation and resulting in RBA interest rate increases this year,” he said.
“The national result however was significantly influenced again by the New South Wales and Victoria recoveries from the severe COVID-19 lockdowns of previous months.”
Dr Wilson added that the short-term outlook for the national labour market “remains patchy”, reflecting self-imposed voluntary lockdowns set to “impact economic performance through January, February and perhaps beyond”.
“In those circumstances, employment will likely decline and unemployment rates will rise as the COVID-19 roller-coaster continues,” Dr Wilson said.
In his most recent statement on the matter, published in December, RBA governor Philip Lowe said the cash rate will not increase until “actual inflation is sustainably within the 2 to 3 per cent target range” as well as until wages growth is “materially higher than it is currently”.
In November, Mr Lowe insisted that the central bank is unlikely to raise the cash rate before 2024, stating that a hike made earlier would only be possible if “faster-than-expected progress continues to be made towards achieving the inflation target”.
“The RBA current outlook for rate increases remains at 2024 – a prediction that was made prior to the re-emergence of the COVID-19 scourge,” Dr Wilson later added.
“Given current data, the latest RBA statements and a depressing COVID-19 outlook, predictions of official interest rate rises as soon as August are clearly nonsensical.”