VIEW: A Hawkish Shift; More Hikes Likely

CBA note that “Forward guidance has shifted in a hawkish direction and the reference to not being on a pre‑set path was dropped. The Board expects that “further increases in interest rates will be needed over the months ahead”. We have amended our central scenario and now expect further 25bp rate hikes at both the March and April Board meetings for a peak in the cash rate of 3.85% ‑ this will take monetary policy into deeply restrictive territory. Two further 25bp interest rate hikes means the probability of a soft landing for the economy is lowered significantly. The budgets of many home borrowers will be under considerable strain over the coming year. We think policy easing will be required in Q4 23 if Australia is to avoid a hard landing. We continue to expect 50bp of rate cuts in Q4 23 and a further 50bp of easing in H1 24.”