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RBA to start tightening in early 2023: Reuters poll -Breaking

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© Reuters. FILEPHOTO: An Australian man smokes in front of the Reserve Bank of Australia headquarters, central Sydney. February 6, 2018. REUTERS/Daniel Munoz

By Shaloo Shrivastava

BENGALURU – A Reuters poll of economists found that the Reserve Bank of Australia (RBA), is likely to increase interest rates as early as 2023. This could be sooner.

In the face of growing inflation across Australia, and the rest of the globe, the RBA will likely raise its cash rate to 0.10% for the first quarter in 2023.

It’s quicker than the forecast for 2023 second quarter in a poll that was taken nearly a month ago. However, in an earlier survey only two months back there was not consensus to expect any rate hike in 2023.

By comparison to the 11 economists who were polled in the previous poll, only 16 economists predicted a rate rise by the second quarter 2023.

The Nov. 29-Dec. 2, poll showed that economists expected a rate rise of 25 basis point to 0.50% in the first quarter of 2023. In the last quarter of 2023, it is projected that the cash rate will rise to 0.75 percent.

According to all economists, the cash rate was expected to remain stable at 0.1% at the December 7th meeting.

The markets are more competitive and fully price in rate increases as soon as July 2019. [RBAWATCH]

We expect a RBA rate increase in the fourth quarter of 2022, and believe that there is a greater chance for a move. Andrew Ticehurst is a senior economist with Nomura. “I think that RBA’s inflation forecasts are far too low. Governor Lowe will have to pivot hawkishly over the coming months,” he said.

The RBA released a statement after its November meeting blaming higher energy prices for inflation. It also stated that disruptions in global supply chains were to blame. They expect core inflation will pick up slowly.

However, a rise in core inflation led the central bank not to project any rate increases until 2024.

RBA forecasts for core inflation at 2.5%, and wages growth at 3.3% in 2023 according to the RBA. These are essential parameters that must be fulfilled before raising rates.

But, these levels can be reached sooner as wages grew by 2.2% over the past year, up sharply from 1.7% during the June quarter.

They must continue to grow their wages. If wage growth doesn’t pick up then they can’t conclude that they will meet their inflation target sustainably over several years,” said Marcel Thieliant, senior Australia & New Zealand economist at Capital Economics.

Although the RBA is quiet about rising house prices, its nearest peer, the Reserve Bank of New Zealand has already raised interest rates twice this year to target a hot housing market.

According to a Reuters survey, house prices will increase by 6% in Australia next year. This makes it more difficult for first-time home buyers.

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