What to expect from the February 2023 RBA meeting

After the customary January break, the board of the Reserve Bank of Australia (RBA) is meeting in February to discuss monetary policy and the national cash rate. A 25-point rate hike is widely anticipated to be the result of the meeting, though economists from Australia’s big four banks have differing opinions on what may happen next.

RBA

In the minutes of its December 2022 meeting, the RBA board reaffirmed that its priority is to “re-establish low inflation and return inflation to the 2 to 3 per cent target range over time.” 

In a speech to the Senate Select Committee on the Cost of Living, RBA head of economic analysis, Marion Kolher, acknowledged that higher interest rates have put pressure on some Australians:

“We understand that some people are finding the rise in interest rates difficult to manage and others will have to cut back on discretionary spending. However, higher interest rates are necessary to ensure that the current period of higher inflation and cost of living pressures does not persist too long. As the Governor has emphasised, the Reserve Bank Board is focused on returning inflation to target and establishing a more sustainable balance of demand and supply in the Australian economy.”

Ms Kolher added that the RBA expects to publish revised forecasts at the end of next week, and that “we think the peak in inflation was at the end of 2022 – at around 8 per cent – and that inflation will begin to ease over the course of this year.”

ANZ 

ANZ is sticking to its forecast that the RBA will hike the cash rate by 25 basis points at its February 2023 meeting, with another two 25-point hikes to be made by May 2023.

That said, ANZ senior economist, Adelaide Timbrell, recently told the ABC that there’s a risk the cash rate could be pushed even higher to 4.1 per cent if inflation keeps rising:

"But if the data continues to surprise upwards (then) the risk of 4.1 per cent gets bigger… Electricity prices are going to be jumping in December, and that means that inflation is accelerating a little bit.”

Additionally, ANZ Bank CEO, Shayne Elliott, has said that the overall level of demand is still robust in Australia, and that "to take demand out there’s probably going to be more rate rises than people think." 

CBA

The Commonwealth Bank remains the optimist of Australia’s big four banks, forecasting that after a 25-point rate hike in February 2023, the RBA should leave the cash rate on hold for the rest of the year. And if conditions improve, it may even cut the cash rate in later 2023.

Commonwealth Bank head of Australian Economics, Gareth Aird, said that if the RBA does choose to start cutting the cash rate in later 2023, this could lead to a recovery in Australian house prices:

“Our narrative is quite simple on the housing front.  RBA policy decisions from here will drive the demand for credit, which in turn will influence home price outcomes.  Dwelling prices will continue to slide in the short run, but if the RBA takes the cash rate lower in late 2023 as per our forecast then home prices are likely to rise.  We expect the Sydney and Melbourne housing markets to be the most responsive initially to RBA rate cuts given they were the first to enter their correction phase.”

On the other hand, Mr Aird also said that there was a "non-trivial" risk that the RBA could choose to raise the cash rate by 40 basis points to 3.50 per cent at its February meeting, and to also announce their intention to hold the cash rate steady over the period ahead "while it assesses the impact of the cumulative rate increases."

NAB

NAB economist, Taylor Nugent, has said that the RBA will hold its nerve and commit to a 25-point rate rise in February 2023, followed by another in March to bring the cash rate to a peak of 3.6 per cent. However, this could change depending on how clearly the RBA can forecast future falls in inflation:

“Looking forward, the characterisation from the RBA’s business liaison will inform the skew of risks. The forecast horizon will be extended to mid-2025, which we expect to be enough to see the RBA forecast inflation back within the 2-3% band. The assumed cash rate path is likely to be similar to November, which had a peak of around 3½% in mid-2023 and 3% by end 2024. If the RBA can’t forecast inflation back in the band even at that horizon, it would plant the risk for a cash rate peak towards 4%.”

Westpac 

Westpac chief economist, Bill Evans, is forecasting a 25-point hike in February, and potentially another in March:

“We expect that the Board will leave its options open in the Governor’s Statement after the February meeting to allow scope to raise rates at the March meeting. A central bank is unlikely to pause when there the evidence of demand pressures and firms seizing some pricing power associated with rising services inflation as we saw in the December inflation report.”

Westpac forecasts that the cash rate will reach 3.85 per cent by May 2023, “where a pause will be confidently expected.” Additionally, the first rate cut from the RBA should arrive in the March 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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