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Hawkish RBA will hike rates to 2% by year-end

The RBA started hiking the cash rate today and sounded hawkish for the first since the start of the pandemic. Our forecast that interest rates will reach 2% by year-end is far above the analyst consensus of 1%, but the risks are tilted to the upside.
Marcel Thieliant Senior Japan, Australia & New Zealand Economist
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Australia & New Zealand Economics Weekly

Housing downturn to weigh on activity

The housing downturn is now in full swing. While that hasn’t prevented a solid rise in consumption in Q2, we think falling wealth will be a drag on consumer spending next year. What’s more, our forecast that house prices will eventually fall 15% from their April peak would be consistent with dwelling investment falling sharply in the coming years. The upshot is that the housing downturn will bring the Australian economy close to recession next year.

1 July 2022

Australia & New Zealand Data Response

Australia CoreLogic House Prices (Jun.)

The monthly decline in house prices in June was the largest since 2019 but is unlikely to be the sharpest decline in the current downturn. We think house prices will eventually fall by 15% from their April peak, which will weigh heavily on GDP growth next year.

1 July 2022

Australia & New Zealand Data Response

Australia Retail Sales (May 2022)

The strong rise in retail sales in May highlights the strength in the Australian economy and is consistent with our view that the RBA will continue to hike rates aggressively in the months ahead.

29 June 2022

More from Marcel Thieliant

Japan Economics Weekly

BoJ still likely to tweak Yield Curve Control

The Bank of Japan remained under pressure to defend its yield target this week and pledged on Thursday to keep buying an unlimited amount of bonds for as long as necessary. While 10-year JGB yields have dropped below the upper end of the Bank’s tolerance band for now, we think they will soon rise again as overseas yields continue to surge. Accordingly, we still expect the Bank to widen the tolerance band over the coming months.

29 April 2022

RBA Watch

RBA to hike aggressively as inflation surges

The surge in inflation would warrant a rate hike at the Reserve Bank of Australia’s upcoming meeting on 3rd May. But we think the Bank will wait until the June meeting, where we now expect the cash rate to rise to 0.50% We expect rates to reach 2% by the end of this year and 2.5% by mid-2023, which would be a bit more aggressive than the Bank’s last two tightening cycles.

27 April 2022

Australia & New Zealand Data Response

Australia Consumer Prices (Q1 2022)

Inflation surged in Q1 and is on track to surpass 6% later this year, exceeding the levels reached around the GST hike in 2000. With trimmed mean inflation already higher than at the start of previous tightening cycles, the Reserve Bank of Australia may opt for a 50bp hike at its June meeting.

27 April 2022
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