EY chief economist Jo Masters said the central bank’s update was “mixed” with weaker economic growth than expected alongside a lower unemployment rate and higher inflation.
Loading
“These seemingly contradictory revisions to their outlook reflects an economy running at or above its potential,but still battling with a pandemic and all the disruptions that go along with it,” Ms Masters said.
She said even a jump in the next round of wages growth data due in late-February “is unlikely to be sufficient for the RBA to be confident enough to put a rate hike on the table this side of the new financial year”.
The market has been pricing in rises around May,about the expected time of the federal election.
Commonwealth Bank head of Australian economics Gareth Aird doubled down on previous forecasts for a 15 basis point cash rate rise in August and ending the year at 0.75 per cent before reaching 1.25 per cent in mid-2023.
Mr Aird said upcoming data for the fourth quarter of 2021,due on February 23,will show wage rises accelerate.
“That said,it is likely that we will require two to three quarterly prints that show strengthening wages growth before the RBA pulls the rate hike trigger,” he said.
Deutsche Bank has also stuck with its August forecast for a rate rise,though said in a research note the RBA’s comments have “reduced the possibility of ... liftoff” any earlier than this and have made a May increase far less likely. BIS Oxford Economics principal economist Sean Langcake has brought forward his forecast to the fourth quarter of this year but no earlier due to the “dovish” tone of the central bank.
“Having been too optimistic on wages growth in the past,the RBA are taking a very cautious approach to this cycle,” he said.
KPMG chief economist Brendan Rynne is expecting a rate rise later this year,most likely in November.
“Wage restraint in a time of economic uncertainty has been the underlying theme during the pandemic,although consumer expectations of an increase in wages is now growing,” Dr Rynne said.
“With official inflation data rising,consumers’ day-to-day experiences of current living costs escalating,and a severe tightening in Australia’s labour market,it’s likely this theme of wage restraint will buckle fully this year.”
Future Fund chair and former treasurerPeter Costello has said the RBA’s former plan to hold rates until 2024 was “not tenable” and it had never been able to accurately indicate what rates would be three years in advance.
Updated forecasts are due to be officially released on Friday,however,Dr Lowe is expected to further outline the bank’s thinking during a speech at the National Press Club in Sydney on Wednesday.
Loading
The Morning Edition newsletter is our guide to the day’s most important and interesting stories,analysis and insights.Sign up here.