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Bendigo and Adelaide Bank: February Economic Update

8 February 2023 |Announcements

Australians should brace for another rate increase in March but the prospect of a pause isn’t completely off the table, according to Bendigo and Adelaide Bank Chief Economist, David Roberston.

In his first economic update for the year, Mr Robertson says inflation is a central bank’s worst fear which is why the RBA are acting so quickly and decisively.

Interest rates

“A ninth successive RBA rate hike wasn’t a surprise for markets but has created a wide range of views on when rates will peak,” Mr Robertson says.

“This week’s hike to 3.35% was driven by the high read for core inflation released last month, and evidence that our economy still has reasonable momentum.

“The prediction from the RBA that further increases in interest rates will be needed over the months ahead does seem to be definitive; they have more work to do to make sure this spike in inflation is only temporary and are warning of potentially more than one hike ahead.

“While the consumer price index (CPI) rate of 7.8% for the end of 2022 was as forecast, core inflation at 6.9% was well above consensus and RBA forecasts.

“The next rate hike to 3.6% is now very likely in March,” Mr Robertson said.

“Further rate hikes beyond March will depend on where wages and jobs data lands later this month. The next quarterly inflation numbers are out in late April, so while we are still expecting a plateau in rates at around 3.6% by May, evidence that inflation has peaked will further support this view.

“Australians however should only expect a pause in hikes as we don’t yet see rate cuts on the horizon. For the RBA to cut rates we will need core inflation back below 3%, which might not happen until late 2024,” Mr Robertson says.

International markets

With China reopening their economy, Mr Robertson says we will see a stronger rebound in tourism and other service exports such as international education.

“We were already calling for a soft landing in 2023 prior to the welcome news that Chinese authorities were abandoning their COVID-zero policies, so the faster path back to pre-pandemic levels of overseas arrivals, as well as stronger appetite for our exports, will all help to offset the reality of much higher interest rates weighing on household spending,” Mr Robertson says.

“The risk of recession in the US, UK and much of Europe hasn’t disappeared, but China’s reopening may result in shallower recessions.

“For Australia, while the economy will be growing more slowly and unemployment is likely to edge higher, we expect outperformance from our major trade partners should help us to avoid a hard landing.”


Mr Robertson says the country will see a slight uptick in the unemployment rate, higher than the RBA is currently forecasting.

“We expect the unemployment rate to head back above 4% this year, higher than RBA forecasts, but still lower than 2019 levels. Unlike last year, access to labour for businesses should improve,” Mr Robertson says.

Property, Aussie Dollar and Stock Markets

“Property prices continue to fall as borrowers bear the brunt of the rate hikes, and the ‘peak to trough’ decline so far of 8.9% nationally is a record fall for residential property. However, there is a wide range of outcomes by location, and these falls do need to be considered in the context of large increases during the pandemic, low unemployment (for now) and potentially a rise in demand for property from overseas,” Mr Robertson says.

“While we’ve seen the Aussie dollar outperform this year, it’s not going to be one way traffic ahead.

“And lastly, stock markets don’t appear to be pricing in recession here in Australia or almost anywhere around the world, and the latest US jobs data may imply a longer cycle, deferring the timing of recessions overseas. Australia’s recent outperformance is a pleasing outcome.”

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