RBA Governor Michelle Bullock.
Economists are now backing in another rate hike as soon as next month after the Reserve Bank boss called it a “live” possibility at the March meeting.
CreditorWatch’s chief economist, Ivan Colhoun, is pricing in another 0.25 per cent interest rate rise at the RBA’s next meeting in two weeks, changing his view after hearing Michele Bullock’s comments.
“An increase at that meeting is now my base case,” Mr Colhoun said. “The March RBA meeting was very under-priced. I’m changing my view and now consider a further 0.25 per cent interest rate rise in March to be highly likely.”
Reserve Bank of Australia Governor, Michele Bullock. Picture: Martin Ollman.
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Mr Colhoun said the fact that inflation was still above target and only forecast to return to the target band of 2 to 3 per cent by mid-2027 was among his reasons for predicting another rate rise so soon.
A quarter of a per cent rise in March would take the official cash rate from 3.85 per cent to 4.1 per cent.
“Bullock also clarified that her use of the word patient last week was in relation to the Board needing to collect more data,” he said.
Inflation and employment are weighing on the economy. Picture: John Appleyard.
“Since the February Board interest rate rise, the January CPI has confirmed the RBA’s above forecast assessment for inflation, while the unemployment rate has again printed at 4.1 per cent, a level the RBA describes as a little tight.
“Furthermore, in the speech, the Governor concluded that ‘economy-wide capacity pressures in the economy are also playing a role and, overall, we think underlying demand in the economy is further from its supply potential than we had assessed six months ago’.”
Mr Colhoun is not the only one who is now forecasting a rate hike this month, instead of May.
Homeowners are bracing for another interest rate rise in March.
Coolabah Capital economist Kieran Davies said it was clear the governor’s messaging had changed.
“We narrowly favour the RBA raising rates again this month, or, failing that, a number of policymakers voting to raise rates,” Mr Davies said.
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He said Coolabah Capital estimated the RBA’s economic outlook suggested persistent inflation would likely see it raise the cash rate to between 4.25 per cent and 4.75 per cent.
“Although there is always the possibility that it may raise rates by less than this and opt to keep rates steady for longer.”
The RBA board next meets on March 16-17, skips April, and meets again on May 4-5, ahead of the federal budget on May 12.
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