More rate rises to come – NAB

NAB economists project that interest rates will hit a peak of at least 4.1%

More rate rises to come – NAB


By Ryan Smith

NAB economists have revised their interest rate predictions, now projecting that the cash rate will hit a peak of at least 4.1%.

NAB is reverting to its February prediction that the Reserve Bank’s rate-hiking cycle will continue, with rates hitting a peak of 4.1% in July – although the bank’s economists said the RBA could wait until August to raise rates to that level.

“Our February call of a likely 4.1% peak in the cash rate was based on three fundamentals: that inflation would remain well above target in the near term; that the economy was displaying considerable resilience; and that a tight labour market would continue to support a pickup in wage growth,” NAB said in a news release. “These fundamentals all remain evident.”

NAB said that the RBA’s monetary policy strategy had been “marked by some mixed signals” this year.

“Nowever, it is clear that the near-term balance of risks on inflation remain to the upside, and the RBA is forecasting inflation to only return to the top of the target band by mid-2025,” the bank said. “At least one additional rate rise is likely to be necessary to limit the risk this timeline slips any further. We wouldn’t rule out the prospect of an additional rise to 4.35% if the data stays stronger for longer.”

NAB stressed that its rate prediction is not a response to the recent federal budget, which the bank judged to be “broadly neutral” in terms of its impact on inflation and implications for monetary policy.

“It remains our view that, as higher rates pass through to household cash flows and the wider economy, the economy will begin to slow more noticeable in the second half of 2023 and into 2024, seeing annual GDP growth slow to below 1% and the unemployment rate begin to rise, reaching around 4.7% in 2024,” the bank said. “This makes it an increasingly difficult balancing act for the RBA to manage inflation lower without slowing the economy too much.”

NAB continued to project that the cash rate would fall to 3.1% by mid-2024.

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