Cash rate to hit 3.35% by year end: Macquarie

In its latest economic outlook, Macquarie’s macro strategy team slashed their global economic growth forecasts and now expects a deeper and longer period of challenging economic conditions, with 1H23 as the likely starting point.

Macquarie also expects a significantly higher unemployment rate than the RBA.

It comes ahead of the Reserve Bank of Australia’s (RBA) monetary policy meeting on Tuesday (4 October), which is expected to see another increase to the cash rate from its 2.35 per cent. 

“The unemployment rate is likely to be already close to the low for this cycle and Macquarie anticipates it to rise to 4.5 per cent or more over the next couple of years.”

In other words, Macquarie anticipates that labour market conditions will have to ease by more than the RBA’s central forecast to bring inflation back to target.

While Macquarie expects Australia is expected to avoid a recession (for now), it says growth will slow materially with the cash rate expected to peak at 3.35 per cent by December this year.

“As inflation falls below 3 per cent in 2023, Macquarie anticipates the RBA will commence cutting rates,” the group said.

The negative outlook comes as CBA remains the only major bank that believes the RBA will cut rates by 25 bps this week.

As at 29 September, the ASX 30 Day Interbank Cash Rate Futures October 2022 contract was trading at 97.320, indicating a 76 per cent expectation of an interest rate increase by 50 bps at the upcoming RBA board meeting.

[Related: Housing inflation drops from peak]