If you're investing in ASX shares, you're well aware of the impact that inflation and fast-rising interest rates have had this year.
Both the All Ordinaries Index (ASX: XAO) and S&P/ASX 200 Index (ASX: XJO) came under selling pressure following May's interest rate hike from the Reserve Bank of Australia (RBA). That marked the first tightening from the central bank since November 2010.
At the time, the RBA lifted the official cash rate from the all-time low of 0.10% to a still low 0.35%.
Today the rate stands at 2.85%.
And ASX shares have rallied over the past month amid speculation that interest rates might not rise as quickly, or as high, as the market has been pricing in. A view that gained further traction by yesterday's inflation report from the Australian Bureau of Statistics (ABS).
The ABS reported that the monthly Consumer Price Index (CPI) indicator increased by 6.9% in the year to October 2022. Still high. But less than the 7.3% movement in September.
So, what can investors in ASX shares expect from the RBA as we head into 2023?
What can ASX share investors expect from the RBA?
Two leading experts have rather divergent views on just how high the RBA will raise interest rates in 2023. Depending on who's correct, ASX shares could underperform or outperform current consensus expectations.
As Bloomberg reports, Andrew Boak, chief economist for Australia at Goldman Sachs, believes the RBA will remain decidedly hawkish in 2023.
Boak expects the RBA will hike rates five more times That would bring the cash rate to 4.1% in May, and put many ASX shares under pressure.
"The 2023 challenge for Australia is to return inflation to an acceptable level without breaking the housing market and precipitating a recession," he said. He added that the majority of households have enough excess savings to weather the impact of higher rates without crashing the property market.
Coming in with a more dovish forecast is Gareth Aird, head of Australian economics at Commonwealth Bank of Australia (ASX: CBA).
Aird forecasts that the RBA will lift rates to 3.1% when it meets next Tuesday, and then be done with the tightening cycle. He believes the RBA's focus on keeping the Aussie economy "on an even keel" will keep the central bank from raising rates any further.
If Aird is right, it would likely offer some healthy tailwinds to ASX shares in the early months of 2023.
According to Bloomberg's survey of economists, the median expectation for the RBA's terminal cash rate is in 2023 is 3.6%.
