What to expect from the RBA meeting in March 2023

In February 2023, the Reserve Bank of Australia (RBA) sprung out of the blocks ready to take on inflation, hiking the cash rate by 25 points. Most of Australia’s major banks are expecting a repeat performance at the March 2023 meeting, though it’s not certain when the cash rate will reach its peak, or when the RBA will start cutting rates. 

RBA

In the minutes of its February 2023 meeting, the RBA revealed it had considered two options for the cash rate – a 25-point hike, and a 50-point hike. The higher hike, last seen between June and September 2022, was considered due to concerns around price and wage data exceeding expectations, which could indicate that higher inflation would remain persistent. However, the smaller 25-point hike was selected, in part due to uncertainty around tighter household budgets and falling real incomes.

“Members observed that, while underlying inflation had been higher than previously forecast, headline inflation was below earlier expectations. The forecast was for inflation to fall within the target range by the end of the forecast period in mid-2025.”

The RBA board members also agreed that further increases to the cash rate will likely be needed in the months ahead to help return inflation to target.

ANZ

The first of Australia’s big four banks to announce that it would be passing on last month’s cash rate hike, ANZ has since adjusted its interest rate forecasts. While it previously believed the cash rate would peak at 3.85 per cent in May 2023, it now expects a peak of 4.1 per cent.

“Persistence in inflation pressures suggests that the cash rate will remain in restrictive territory for some time.”

According to ANZ, the cash rate isn’t expected to start easing until a 25-point cut in November 2024.

Commonwealth Bank 

While the Commonwealth Bank has updated its interest rate forecasts, it remains the optimist of Australia’s big four banks. Immediately after the February 2023 rate hike, CBA amended its predictions to expect two further rate hikes in March and April 2023, bringing the cash rate to a peak of 3.85 per cent, which it described as “deeply restrictive territory” for monetary policy.

CommBank criticised the RBA’s approach, arguing that the 300 points of rate hikes between May and December 2022 meetings had very little impact on price changes in the economy over 2022, and predicting that inflation would drop more quickly than the RBA’s forecasts.

“We think that the RBA is underestimating the lagged impact that the already delivered interest rate hikes will have on the economy in 2023.”

Commonwealth Bank added that it also expects policy easing would be required at the end of 2023 to avoid the “hard landing” of a recession, and that it expects 50 points of cuts to be announced in the fourth quarter of 2023 and again in the first half of 2024.

NAB

According to NAB’s February 2023 monetary policy update, three 25-point rate hikes are expected for March, April, and May 2023, bringing the cash rate to a peak of 4.1 per cent, which it also describes a move “deeper into restrictive territory” that comes with its share of risks:

“The speed and magnitude of the tightening so far, combined with ongoing delayed pass through and uncertainty over how consumers react (with confidence already very low) poses the risk of a sharper than expected slowdown. We still don’t expect a technical recession in Australia – but with rates rising above 4%, it is becoming more of a possibility. Ultimately, a more significant downturn would see rates cut more quickly in early 2024.”

NAB also said that it expects that the RBA will need to cut interest rates in early 2024 to support growth as inflation moderates. NAB sees neutral as broadly around 3 per cent, and expects rates to drift back towards this level as the economy slows.

Westpac

Westpac recently also raised its interest rate forecasts to predict a peak of 4.1 per cent by May 2023, thanks to three consecutive 25-point rate hikes. By June, Westpac is predicting that there will be credible evidence that demand is slowing, labour markets are easing, and the risks of a wage/price spiral have reduced. This should indicate that the cash rate will be in “deeply contractionary territory” and encourage the RBA to pause its rate-hiking for the time being. 

“The decision to pause will be with a reasonable view that the tightening cycle has peaked. Westpac concurs and expects that the next move in rates beyond mid–2023 will be the beginning of an easing cycle in the March quarter 2024.”

Additionally, Westpac forecast inflation in Australia to still be around 4 per cent by end 2023, falling to 3 per cent by end 2024, allowing a policy response to a stagnating economy by the first quarter of 2024.

To help you stay up to date with the latest updates to the national cash rate, as well as the changes to interest rates on home loans and savings accounts that follow, be sure to visit the RateCity RBA Rate Tracker hub.

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