Overview

As flagged on Tuesday, we now expect the first cash rate increase to occur in June, (15bps), followed by 25bps increases in July, August and November. That would see the cash rate target at 1.00% by the end of the year. From there we expect a more gradual path, with the RBA raising rates a further 5 times over 2023 and 2024, taking the cash rate target to 2.25% by the end of our forecast horizon.

• Strong recent activity data, including NAB’s business surveys, elevated job vacancies and last month’s labour force data suggest labour demand remains very strong, while wages are still expected to strengthen gradually. We also expect consecutive strong inflation prints in the near term.
• Critically, this week’s Board statement revealed a shift – long expected – removing any reference to a willingness to be “patient” with a focus instead on assessing data over “the coming months”. By June the Board will have data on Q1 CPI, WPI, and the National Accounts showing that wage pressure is building, and price rises have become more widespread.
• Ahead of raising rates, we expect the RBA to confirm in May that it will not reinvest maturing bonds, which would see bond holdings decline over an extended period. We do not see the RBA actively selling its holding of bonds in the near-term, though it may be an option further in the future.

For further details, please see the NAB Monetary Policy Update – 7 April 2022