VIEW: CBA: 25bp Increase And A Less Hawkish Tone

CBA note that “overall, the modification today aligns with our central scenario. Namely that we expect one further 25bp rate hike, likely to be delivered at the April Board meeting, for a peak in the cash rate of 3.85%.”

• “We expect GDP growth to be softer this year than the RBA (we expect GDP growth of 1.0%/yr in Q423 compared to the RBA’s forecast of 1.5%/yr). By extension this means that we expect the unemployment rate will rise more quickly than the RBA anticipates (we forecast the unemployment rate to be 4.3% in Q423 compared to the RBA’s forecast of 3.8%).”
• “We may be wrong, of course. And no economist has a crystal ball. But a host of top tier domestic economic data printed below market expectations over the past four weeks ‑ GDP, wages, employment, unemployment and CPI (note that the RBA does not forecast the monthly CPI). The RBA have acknowledged the recent data today through their shift in forward guidance at today’s meeting.”
• “Indeed the Governor is speaking tomorrow on “Inflation and Recent Economic Data” at the Financial Review Business Summit. Governor Lowe will have the opportunity to more fully flesh out the RBA’s latest thinking on the economy and outlook for monetary policy.”