March rate hike now 'highly likely' as economists revise forecasts
The Reserve Bank of Australia (RBA) is poised to raise interest rates again, with economists now predicting a hike as early as next month. This shift in sentiment comes on the heels of RBA Governor, Michele Bullock's, recent comments at the March meeting, where she acknowledged the possibility of a rate increase as a 'live' option.
CreditorWatch's chief economist, Ivan Colhoun, has revised his forecast, now anticipating a 0.25% interest rate hike at the RBA's upcoming meeting in two weeks. This change in perspective is largely attributed to Bullock's remarks.
'An increase at that meeting is now my base case,' Colhoun stated. 'The March RBA meeting was very under-priced. I’m changing my view and now consider a further 0.25% interest rate rise in March to be highly likely.'
The RBA's decision is influenced by several factors, including persistent inflation and employment levels. Colhoun highlights that inflation remains above the target range and is only projected to return to the 2-3% target band by mid-2027. A quarter-point rise in March would elevate the official cash rate from 3.85% to 4.1%.
Bullock's clarification regarding her use of the word 'patient' last week further emphasizes the need for data collection by the Board. Since the February interest rate rise, the January CPI has exceeded the RBA's initial inflation forecast, while the unemployment rate has stabilized at 4.1%, a level deemed 'tight' by the RBA.
'Economy-wide capacity pressures are also contributing to the situation, and we believe that underlying demand is further from its supply potential than we initially assessed six months ago,' Bullock concluded in her speech.
Colhoun isn't alone in his prediction; other economists are also forecasting a rate hike this month, deviating from the earlier May timeline. Homeowners are bracing for the potential impact of another interest rate rise in March.
Kieran Davies, an economist at Coolabah Capital, notes a shift in the governor's messaging. 'We narrowly favor the RBA raising rates again this month, or, failing that, a number of policymakers voting to raise rates,' Davies said. Coolabah Capital's economic outlook suggests that persistent inflation may lead the RBA to raise the cash rate to between 4.25% and 4.75%.
Despite the likelihood of a rate hike, there's always the possibility that the RBA may raise rates by less or maintain current rates for an extended period.
