Overview

We now see the first RBA rate rise occurring in August (15bps) with further increases in September (25bps) and November (25bps) with the corridor left unchanged (with the ES rate kept at 10bps below the target). This will see the cash rate target back to pre-pandemic levels of 0.75% by the end of 2022.

• The change in our view comes alongside an upgrade to our domestic forecasts. We now see the unemployment rate below 4% by March – well ahead of RBA expectations – and around 3.5% in the second half of 2022.
• We also expect higher quarterly trimmed-mean inflation of around 1% in Q1 and Q2 (still with some upside risk), putting core inflation at around 3¾% by mid-year (compared to the RBA’s 3¼% forecast).
• We expect the RBA will continue to gradually normalise policy through 2023 and 2024, assessing financial conditions in real time as the TFF ends and RBA bond holdings begin to mature. We see a further six hikes over two years – which sees the cash rate around 2.25% by the end of 2024.
• The RBA is unlikely to reinvest its bond holdings as they mature, instead allowing maturities to roll off the balance sheet in 2022 and subsequent years, subject to economic conditions remaining favourable.

For further details, please see the NAB Monetary Policy Update – 8 March 2022