VIEW: NAB Lower Terminal Rate Call, Still Expect Hike Next Week

NAB write “we continue to expect the RBA to raise the cash rate by 25bps in April, though we now see the resulting 3.85% rate as the peak (previously 4.10%). Further out, we continue to see rate cuts in H124 bringing the cash rate back to 3.10% as the economy slows and unemployment rises.”

• “It has become increasingly clear that interest rates are nearing their peak, and the April meeting is a line-ball decision. The labour market remains very tight, inflation is well above target and the risks on wage growth remain to the upside. However, activity is also slowing as post-COVID momentum fades and the monthly CPI appears to confirm RBA and market expectations that inflation has passed its peak.”
• “The key question for the RBA Board is whether the current level of interest rates is now sufficiently high to ensure inflation sustainably returns to target in a reasonable time frame. In part, this depends on wage pressures remaining contained and expectations for inflation staying anchored. Based on the RBA’s statements and forecasts, a peak cash rate of 3.60% is unlikely to be seen as sufficiently restrictive by the Board, necessitating one more increase before a pause to assess how the effects of prior monetary policy tightening flow through.”