Economists are now predicting a rate hike as soon as next month, with the Reserve Bank of Australia (RBA) Governor, Michele Bullock, emphasizing the possibility at the March meeting. This shift in forecasts comes as inflation remains persistently above target, only expected to return to the 2-3% range by mid-2027.
CreditorWatch's chief economist, Ivan Colhoun, now anticipates a 0.25% interest rate increase at the RBA's upcoming meeting in two weeks, a significant change from his previous stance. This prediction is based on the RBA's assessment that the economy's underlying demand is further from its supply potential than initially thought, and the unemployment rate remains at a level considered 'tight' by the RBA.
The proposed rate hike, if implemented, would elevate the official cash rate from 3.85% to 4.1%. Colhoun clarifies that Bullock's use of the word 'patient' last week referred to the Board's need for more data. Since the February interest rate rise, the January CPI has confirmed the RBA's elevated inflation forecast, and the unemployment rate has remained at 4.1%, a level the RBA considers tight.
Coolabah Capital's economist, Kieran Davies, shares a similar outlook, favoring a rate hike this month or a vote by policymakers to raise rates. The RBA's economic outlook suggests that persistent inflation could lead to a cash rate increase to 4.25% to 4.75%. However, there's always the possibility of a less aggressive rate hike or a decision to maintain rates for an extended period.
The RBA board's next scheduled meetings are on March 16-17, skipping April, and then again on May 4-5, ahead of the federal budget on May 12. This timing highlights the urgency of the economic decisions being made.
