What to expect from the RBA meeting in July 2022

When it comes to hiking the national cash rate, will three times prove a charm for the Reserve Bank of Australia (RBA)? Here’s what some of the nation’s big banks are forecasting for the July 2022 meeting:

RBA

Speaking at an address to the American Chamber of Commerce, RBA governor, Dr Philip Lowe, said that the RBA board discussed a 25 or 50 point increase to the cash rate at their June 2022 meeting, and that the board is likely to have the same discussion again in July 2022:

“As I said in my prepared remarks, we're not on a pre‑set path. We're going to look at the data that we have each month and at the level of interest rates and the inflation outlook, but I expect that next month we'll be having the same discussion at our Board meeting: 25 or 50.”

While Governor Lowe did not rule out a larger rate hike of 75 basis points altogether, he reiterated that the decision at the next meeting is more likely to be 25 or 50 points. 

ANZ

ANZ head of Australian economics, David Plank, said following the June 2022 rate hike that ANZ was forecasting a 25 basis point hike in July 2022, and a 50-point hike in August, following the release of the next Consumer Price Index (CPI) report from the Australian Bureau of Statistics (ABS) in July 2022. 

However, ANZ Research is now indicating that the RBA will hike by 50 points, and may signal more rate hikes to come.

Commonwealth Bank

Commonwealth Bank head of Australian economics, Gareth Aird, has described a 50-point cash rate hike as “the obvious choice” for the RBA, with increases to both the minimum wage and the inflation outlook to be the likely justifications for the hike.  

Mr Aird added that “it does not make sense to chop and change between a series of 25bp and 50bp hikes over coming months.”

“Put another way, a potential sequence of rate hikes of 25bp in May, 50bp in June, 25bp in July and 50bp in August would be unwelcome.  It is much better to move by 50bp in July and make a judgement around 25bp or 50bp in August based on the evolution of the data and the outlook for both inflation and the economy.”

NAB

Following the rate hike in June 2022, NAB revised its forecasts to now predict 50-point rate hikes in both July AND August 2022, followed by another 25-point rise in November 2022. This would bring the cash rate to 2.10 by the end of 2022.

Looking further forward, NAB is forecasting two more 25-point rate hikes in 2023, bringing the cash rate to 2.6 per cent by year’s end. Rates are then expected to remain at this level through 2024.

NAB notes that while many Australian mortgage borrowers have savings buffers available to help them absorb the increasing costs of rising interest rates, “household savings (and wealth) is unevenly distributed and for some households reducing savings will not be an option.”

“So while the household sector is likely to have the capacity to further increase consumption over the next year, whether they do so or not is uncertain.” 

Westpac

Westpac economic spokesman, Bill Evans, is calling that the RBA will raise the cash rate by 50 basis points at the July 2022 meeting, with more rate hikes to come in the future.

Hiking the cash rate from 0.85 per cent to 1.35 per cent would still leave the cash rate short of Westpac’s assessment of the “neutral zone” between 1.5 per cent and 2.0 per cent.

“From our perspective the issue becomes one of when it will be appropriate to scale back the rate hikes as uncertainty around the impact of higher rates becomes more real. We do not think policy will reach that stage until after the Board meeting in August.”

As such, Westpac is forecasting a third 50-point hike in August 2022, followed by a pause in hikes in September 2022.

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