VIEW: ANZ Look For RBA to Hike Rates In H223

ANZ now "expect the RBA to increase the cash rate in the second half of 2023, as the conditions it has set out for such a move are met - specifically, inflation above 2% and wages growth above 3%. We have the RBA tightening in two steps in H2 2023, to take the cash rate to 0.5% by end-2023. Our updated forecasts actually have wages growth at 3% and inflation above 2% by the end of 2022, so it is not out of the question that the RBA could tighten earlier than the second half of 2023. The RBA has said, however, it wants to be confident in inflation being sustained above 2% before it raises interest rates for the first time-hence our expectation of the first move not occurring until the second half of 2023. If wages growth remains at or above 3% for a couple of quarters, in the face of an expanding pool of workers, then we think the RBA will be confident enough of the outlook to increase the cash rate. This would be the first rate hike since 2010."

• "Critically, a cash rate of 0.5% is still exceptionally low and will underpin a rate structure that has negative wholesale real interest rates for at least five years, and potentially even longer depending on what is happening to interest rates globally. So we would expect the RBA to characterise monetary policy as still extremely stimulatory. There is a risk the first rate hike happens earlier than the projected second half of 2023. If this is because of a more rapid decline in unemployment and a faster acceleration in wages growth, the policy choice for the RBA will be relatively straight-forward. A more challenging mix for the RBA will be if wages growth and inflation pick up quickly, even if unemployment is higher than the RBA might currently expect. In this case the RBA would need to walk back from its belief that unemployment has to fall to the low 4s or even lower before wages growth (and inflation) picks up materially. We also can't rule out the first rate hike being later than 2023. Covid has thrown up many surprises so far."