What to expect from the December 2022 RBA meeting

As the final meeting of the Reserve Bank of Australia (RBA) board for 2022 approaches, most major banks are forecasting another hike to the national cash rate. This may not be the last rate hike we’ll see over the next few months, though it’s not yet certain when the cash rate will peak before the RBA puts rates back on hold again. 

RBA

In the minutes of its November 2022 meeting, the RBA board noted that Australia’s economy was being influenced by both international and domestic factors, including lockdowns in China, higher energy prices in Europe, and rising retail sales in Australia.

Inflation has been a particular concern for the RBA throughout 2022, with the board forecasting in November that inflation would peak at 8 per cent by the end of the year. Previous decisions to hike the national cash rate have in part been an attempt to return inflation to the RBA’s target band of between 2 and 3 per cent. It’s not yet known how the recent news that monthly CPI inflation dropped from 7.3 percent to 6.9 per cent in October 2022 will influence the RBA’s decision.

While the RBA chose to hike the cash rate by just 25 basis points rather than 50 in November 2022, it also did not rule out returning to larger increases in the future if necessary, or keeping rates unchanged for a period while it assesses the state of the economy and the inflation outlook.

ANZ

ANZ’s economists have forecast that the cash rate will peak at 3.85 per cent by May 2023, which would mean 25-point hikes in December 2022 and February, March and May 2023 (the RBA board does not meet in January).

Once the cash rate hits this peak, ANZ expects the RBA to keep rates on hold until November 2024, when it may be time for a 25 point rate cut to 3.60 per cent.  

“By mid-2023 we think there will be clear evidence that labour market pressures are easing, such as job vacancies falling more quickly, despite unemployment remaining below 3.5%. At the same time, the expected sharp decline in headline inflation will give the RBA some breathing room regarding inflation expectations. This creates the opportunity for an extended pause, which will morph into a complete stop if the economy tracks the way we expect.” – ANZ head of Australian economics, David Plank

CBA

One of the more optimistic outlooks comes from the Commonwealth Bank, whose economists are forecasting a 25-point hike in December 2022 bringing the cash rate to a peak of 3.10 per cent before pausing.

While CBA acknowledges that it’s possible that the RBA could choose to hike the cash rate by a further 25 points in February 2023 due to a tight labour market, it chose to leave its base case unchanged:

“We believe the RBA are very aware of the risk of overtightening and inadvertently engineering a hard landing.  We expect the labour market data to loosen over coming months as the lagged impact of hikes slows demand and the continual lift in foreign arrivals adds to labour supply.” – Commonwealth Bank head of Australian economics, Gareth Aird

NAB

NAB is forecasting 25-point rate hikes at the next three RBA meetings (December 2022, February and March 2023) to bring the cash rate to a peak of 3.60 per cent, where it will hold until early 2024.

“That said, we see the risks around 3.6% as evenly balanced. Stronger wage growth or a de-anchoring of inflation expectations remain a risk and could warrant higher rates. To the downside, there is significant uncertainty around the potency of rate rises given high household debt levels as well as the risk of an overtightening in policy globally.” - NAB group chief economist, Alan Oster

Westpac

Westpac economists are predicting that the RBA will raise rates by a further one per cent between now and mid-2023, with four 25-point hikes in December 2022, February, March and May 2023.

The bank suggested that the cash rate may even ease in 2024, but only if a sustained return to 2 to 3 per cent inflation appears secure.

“The evidence that tight labour markets and very high inflation will extend into 2023 has become clearer. A central bank, confronted with such developments, which decides to pause can only do so on the basis of clear confidence in their forecasts that inflation is set to ease significantly. We expect that pre-emptive policy based on forecasts is unlikely to be the preferred option of this central bank and markets should heed that warning.” - Westpac chief economist, Bill Evans

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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