Here’s when Westpac (ASX:WBC) expects the RBA to raise the cash rate

Is the RBA going to raise rates this year?

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Key points

  • Westpac thinks the RBA could life rates sooner than expected
  • Has brought forward its forecasts
  • The cash rate could be at 1.75% by March 2024

Interest rates are a hot topic right now with the outlook for increases seemingly improving by the week.

In its latest weekly economic report, the team at Westpac Banking Corp (ASX: WBC) has weighed in on when it thinks the Reserve Bank of Australia will start to lift rates at long last.

What did Westpac say?

Westpac notes that the December quarter inflation report will be released next week. It expects underlying inflation to print 0.7% for the quarter and 2.4% for the annual rate.

This, combined with a December unemployment rate of 4.2%, means the Reserve Bank could start to take action. Westpac supports this view by highlighting that the central bank has previously stated: “If better than expected progress towards the Board’s goals was made then the case to cease bond purchases in February would be stronger.”

But what about the cash rate?

But it isn’t just bond purchases that could end sooner than originally expected. Westpac has brought forward its rate hike forecast from early 2023 to mid 2022.

According to the note, Australia’s oldest bank believes the Reserve Bank will begin raising rates at the August meeting.

Westpac’s Chief Economist, Bill Evans, said: “While we expect the omicron variant to lower Australia’s growth rate in 2022 from 6.4% to 5.5% in 2022 inflation; wage growth and unemployment forecasts are largely unchanged.”

“Our forecasts are significantly different to the RBA’s forecasts and expect that if our forecasts prove correct the case for the first rate hike in the next tightening cycle by the August Board meeting in 2022 is strong.”

“We now expect one hike of 15 basis points in August to be followed by a further hike of 25 basis points in October,” Evans added.

This will mean a cash rate of 25 basis points in August and then 50 basis points in October. After which, the bank is forecasting a number of rate hikes through to March 2024, at which point it estimates that the cash rate will stand at 1.75%.

Time will tell how accurate these forecasts are.

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