NAB Monetary Policy Update – 27 January 2022

RBA to hike in November, QE to end in February as expected.

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Overview

We now see the first RBA rate hike occurring in November, with follow up hikes in December 2022 and February 2023. A likely move of 15bps followed by 25bp hikes at each of the next two meetings will take the target cash rate to 0.75% by February 2023, while the actual cash rate will trade between 50-75bps.

  • The economy has continued to surprise to the upside, with the labour market now 6-12 months ahead of our prior forecasts – and significantly ahead of the RBA’s – alongside two consecutive inflation surprises.
  • From here we see underlying inflation tracking at least in the upper half of the target band with the possibility it will be above the band in Q1 and Q2. As a result, there is the risk the RBA hikes earlier and we think every meeting should be considered ‘live’ from August 2022.
  • For the RBA’s timing, a pickup wage growth will remain an important factor. While it will be difficult to have assessed the breadth and passthrough of wage growth completely by November, the RBA will have two additional reads on the WPI.
  • No change to our view of QE ending in February 2022.

For further details, please see the NAB Monetary Policy Update – 27 January 2022