Overview

• NAB continues to see two more 25bp cash rate increases in 2022 taking the cash rate to 3.1% by year-end, and now expects two further increases in February and March 2023 taking the peak (terminal) rate to 3.6%.
• Today’s Q3 CPI release confirmed inflation has continued to escalate over recent months and the RBA is likely to revise up its peak inflation figures by 0.75ppts next week. The labour market remains very tight, consumption has held up longer than we expected, and conditions in the business survey remain strong.
• In these circumstances, the RBA will need to move monetary policy into more clearly restrictive territory to ensure inflation returns to target, and as such we have revised up our terminal rate expectation to 3.6% (from 3.1%). We see 25bp moves as likely, but a 50bp rise in November is possible, given today’s CPI print.
• We expect higher interest rates to materially weigh on consumption and GDP growth in 2023 and 2024 and while we don’t expect a recession, annual growth will likely fall below 1% and unemployment rise to 4.5%. Full forecasts will be released in our next forecast update in November.
• Slow growth, rising unemployment and easing global inflation pressures are likely to see the RBA begin to ease policy back towards a more neutral setting in 2024, with the cash rate expected to fall back below 3%.

For further details, please see the NAB Monetary Policy Update (October 2023)