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NAB raised its cash rate forecast to 4.35 per cent following the Reserve Bank of Australia’s (RBA) decision to increase the official cash rate to 4.1 per cent during the June decision. However, the major bank has announced it has “tentatively” added an additional 25-bp rise, taking the cash rate to 4.6 per cent.
According to the NAB Group economics team (Alan Oster, group chief economist; Ivan Colhoun, chief economist, C&IB; Gareth Spence, senior economist; Tapas Strickland, markets economist; Taylor Nugent, markets economist; and Brody Viney, senior economist), the major bank has pencilled in 25-bp increases for both July and August.
“While inflation has clearly peaked, and we (like the RBA) see inflation returning to the band by 2025, the extended period of inflation above target amid a tight labour market poses the risk of stronger wage and price expectations becoming embedded,” NAB Group economics team said.
Furthermore, the major bank’s economics team still see the RBA lowering interest rates towards neutral in 2024 as a “forward-looking” central bank sees the slowing in growth and unemployment rising and there’s more clarity that inflation is returning to target.
The three other major banks — ANZ, Commonwealth Bank of Australia (CBA), and Westpac — have also recently adjusted their peak rate forecast, now expecting the cash rate to hit 4.35 per cent.
CBA head of economics Gareth Aird said that the major bank expects one further 25-bp increase after noting the RBA’s “incredibly aggressive” tightening cycle.
Meanwhile, Westpac expects a “follow-up move in July with risks of a further increase in August”.
Westpac’s chief economist Bill Evans said: “Despite having increased the cash rate in both May and June we expect that a further rate hike will be required by the board in July, to really emphasise their commitment to the inflation objective.
“Thereafter the risk is that a further follow-up move may be required at the August meeting when the June quarter inflation report will be available.”
ANZ was the first of the major banks to alter its terminal cash rate forecast to a 4.35 per cent peak prior to the RBA’s meeting on 6 June.
ANZ head of Australian economics Adam Boyton said: “We no longer see 4.1 per cent as sufficient to bring inflation back to the target in a reasonable period of time.
“On the timing, we acknowledge the challenge of calling the RBA from month to month. We consider August the most likely month for a move, driven by the quarterly forecast update cycle and uncomfortable timing around the return of inflation to the target.”
Additionally, the four major banks announced last week that they would be passing on the RBA’s full 25-bp rise to customers, lifting variable home loan interest rates by 0.25 per cent.
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