Bendigo and Adelaide Bank: April Economic Update
The RBA’s decision to pause its series of consecutive interest rate rises in April will be welcomed by borrowers - but could another rise be just around the corner? Bendigo and Adelaide Bank Chief Economist, David Robertson explores the possibilities.
In his latest economic update for 2023, Mr Robertson notes the RBA has left the door open for another rise as soon as May, with the outcome depending on the quarterly inflation data to be released on Wednesday 26 April.
With his forecast for the RBA to pause rates in April coming to pass, Mr Robertson has zeroed in on the RBA’s change of tone in its most recent announcement.
“As forecast in our March update, the RBA sensibly paused their sequence of rate hikes at 3.6% on Tuesday, but maintained their tightening bias, warning of the possibility of ‘some further tightening of monetary policy’ ahead,” Mr Robertson said.
“This message does leave the door open for one more hike to 3.85%, possibly in May, but largely dependent on the quarterly inflation data.
“It’s a very different tone to two months ago when the RBA indicated ‘further increases will be needed in the months ahead’ - and this diluted statement makes sense in lieu of the latest monthly CPI data.” Mr Robertson said.
Mr Robertson reflects on the prospect of the US economy’s recession later this year, noting the US markets are now factoring in a lower peak in rates and cuts throughout the year.
“The US rates appear to have peaked at around 5%, and economic data for manufacturing, housing and the latest fall in job openings supports this view,” Mr Robertson said.
“US CPI thankfully is moderating, which is being reflected in bond markets, but not yet in stock markets.
“From here, while the US, UK and many European economies are headed for recession, we still expect Australian GDP growth of around 1% this year - not much, but still positive in real terms,” Mr Robertson said.
Inflation and unemployment
Mr Robertson said domestic unemployment is likely to edge higher in coming months, as lower consumer demand feeds into challenging business conditions.
“Consumer prices peaked in December at 8.4% and are now below 7%, so, assuming the quarterly data follows a similar path, the RBA can pause rate hikes for some time, and monitor this trend,” Mr Robertson said.
“An upside surprise in the quarterly numbers would bring another rate rise back in play, but irrespective, it’s important to keep in mind how long it will take for core inflation to return to the 2-3% target.
“This is likely a year and a half away, so talk of RBA rate cuts remains premature, in line with an expected ‘softish landing’ with rates remaining around this level,” Mr Robertson concluded.