RBA May Be First Central Bank to East Interest Pressures

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The Reserve Bank of Australia (RBA) may be geared to hit a pause in interest rate increases due to several factors observed by economists. RBA may be the first central bank to take this action despite threats of a global recession.

National Australia Bank

According to National Australia Bank’s (NAB) head of market economics Tapas Strickland, “a number of factors are now working in favour of the RBA putting on hold further increases from April. Five key developments have occurred, which, while still seeing the RBA hiking rates by 25 basis points in our view in February and March, firms our view of a pause thereafter.”

Strickland added that with their view, the cash rate would peak at 3.60 per cent. He also noted that according to the data published by the employment portal SEEK, the labour market tightness is loosening, showing that the labour supply is quickly recovering.

“China, Australia’s biggest export partner, has also pivoted to living with Covid at least three to four months earlier than many had imagined. The pivot should reduce risks to global growth,” added Strickland.

Matt Wacher, chief investment officer at Morningstar for the Asia Pacific, supported Strickland’s commentaries. Wacher noted that “living cost pressures will be so hard on consumers that the Reserve Bank of Australia could be the first major central bank to start cutting interest rates, yet businesses are still on course for an earnings recession.”

The CIO also predicts that the RBA will raise the cash rate once or twice more within the year, and this may be the bank’s response before rates peak. However, Wacher believes the RBA does not have to raise the cash rate because consumers, particularly mortgage owners, “have not yet felt the full effect of the fastest monetary tightening in a generation.”

Wacher expects the RBA to start cutting down rates later this year, ahead of the financial markets’ prediction of Easter 2024.

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