Australia’s central bank will raise interest rates two more times this year to try to overcome sticky inflation, resulting in a further slowdown in economic growth, a Bloomberg survey of economists showed.
(Bloomberg) — Australia’s central bank will raise interest rates two more times this year to try to overcome sticky inflation, resulting in a further slowdown in economic growth, a Bloomberg survey of economists showed.
About half of the 37 respondents including Westpac Banking Corp. expect the Reserve Bank will lift its cash rate to 4.6% by September, while Goldman Sachs Group Inc. and Capital Economics see three more hikes for a peak of 4.85%. Fourteen forecasters, including Commonwealth Bank of Australia, see one more increase and the remaining three expect no change in borrowing costs.
The survey comes a day after minutes of the RBA’s June 6 meeting showed it considered the case to pause but concluded the arguments were stronger for raising rates to 4.1%. The bank has hiked by 4 percentage points since May 2022, a percentage point less than the Federal Reserve’s cumulative increases.
“A 25-basis-point rate increase in July now looks a 50/50 proposition,” said Belinda Allen, a senior economist at CBA. “There is also a risk of a hike at both meetings,” she said, referring to July and August.
In the run up to its July 4 meeting, Australia’s “data-dependent” central bank will receive a monthly CPI indicator and retail sales figures for May — both of which will feed into its policy decision.
The monthly inflation series, however, doesn’t capture all goods and market services in the economy so the full price picture will only emerge when the quarterly report is released at the end of July.
“The RBA may consider waiting for this data,” Allen said.
Economists also trimmed their estimate for growth in the A$2.3 trillion ($1.6 trillion) economy to 1.6% for the three months through June and down to just 0.7% in the fourth quarter. The probability of a recession over the next 12 months stands at 50% — the highest level since the pandemic.
Outside the first half of 2020, when Australia’s economy was driven into reverse by Covid lockdowns, the nation has avoided a recession — defined as two consecutive quarters of contraction — for 32 years.
“We expect substantial slowing in GDP growth in the second and third quarter of this year,” said Benjamin Picton, a senior strategist at Rabobank. “At this stage we expect Australia to narrowly avoid a technical recession.”
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