Will RBA raise interest rates in 2022? Here’s what experts are saying - Kalkine Media

June 23, 2021 04:36 PM AEST | By Chitranjan Kumar
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Summary

  • Commonwealth Bank of Australia expects interest rate hike by end of 2022.
  • The bank estimates the cash rate target at 0.5% at end of 2022 and 1.25% by 2023.
  • The RBA has reaffirmed it does not expect rate hike until "at least" 2024.

Concerns over interest rate hike is roiling financial markets around the world, triggered by uncertainty over central banks’ plans for monetary policy amid improving business conditions. In a surprising turn of events, the US Federal Reserve officials have signalled two rate hikes as well as rollback of the COVID-era support by the end of 2023 as the economy steers clear of the last remaining hurdles on the way to recovery. However, Fed Chairman Jerome Powell downplayed those forecasts and reaffirmed the US central bank's intent to not raise the rate too quickly based on inflation fears alone.

Amidst all this confusion, the debate over the timing of rate hike has intensified. Even in Australia, market experts are expecting sooner-than-expected rise in interest rate, citing improving job market scenario, rollout of COVID-19 vaccines and strong mining commodity prices.

Commonwealth Bank of Australia Expects Rate Hike by End of 2022

Image source: TK Kurikawa, Shutterstock.com

Australia’s largest bank, Commonwealth Bank of Australia (ASX:CBA), has warned that the Reserve Bank of Australia (RBA) would be forced to hike interest rates before the end of next year. CBA’s head of Australian economics, Gareth Aird, expects the central bank to begin normalising monetary policy in late 2022. The lender estimates the cash rate to be 0.5% at end of 2022 and 1.25% by 2023.

CBA is not the only one which believes that the RBA will increase rates in 2022. Two of Australia’s four “Big Banks”- Westpac Banking Corporation (ASX:WBC) and Australia and New Zealand Banking Group Limited (ASX:ANZ)- have already made similar projections.

While ANZ expects the RBA to begin tightening rates in H2 2023 and to take the cash rate to 0.5% by end-2023, Westpac estimates cash rate hike by early 2023.

RBA Does Not Expect Cash Rate Hike Until 2024

Source: © Pgangler  | Megapixl.com

The RBA, in a recent communication, reaffirmed that it does not expect to start lifting cash rates until 2024 “at the earliest”.

In the last policy meet in June, the RBA kept its monetary policy unchanged with rates held at 0.1%, citing that inflation and wage pressures remained subdued, despite recovery in the economy and employment.

The apex bank expects gradual and modest rise in inflation and wages growth following the reversal of some COVID-19-related price reductions. In the central forecast scenario, inflation in underlying terms was expected to be 1.5% in 2021 and 2% in mid-2023. Currently, inflation in Australia stands at 1.1% -- much below than the RBA’s estimates.

The minutes from the June policy meeting showed that policymakers believe that Australia’s economic recovery from the pandemic was stronger than expected, aided by fiscal measures and very accommodative financial conditions. While unemployment rate fell more quickly than expected, housing markets had strengthened further, with prices continuing to increase in all major markets.  

Is Australian economy back to pre-COVID level?

Source: ©Kgtoch   | Megapixl.com

The Australian economy has witnessed a sharp rebound from the COVID-19 pandemic, supported by accommodative policy settings and the acceleration in COVID-19 vaccination drive. The recent Australian Bureau of Statistics (ABS) statistics revealed that the nation’s economy has returned to its pre-pandemic shape.

In the March quarter of 2021, Australian Gross domestic product (GDP) grew at a brisk pace to bounce back to pre-coronavirus levels of 1.8%, beating market expectations of 1.6%. The recent figures suggest that the country’s economic output has rebounded from the previous year’s bushfire crisis and early pandemic-driven fall.


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