Borrow
‘Game-changing’ jobless drop to push rates up in 2023
Game-changing employment figures and the strength of the momentum in the Australian economy will influence an interest rate rise prior to 2024, a big four bank has said.
‘Game-changing’ jobless drop to push rates up in 2023
Game-changing employment figures and the strength of the momentum in the Australian economy will influence an interest rate rise prior to 2024, a big four bank has said.
In its latest economic note, Westpac expressed its confidence in Australia’s economic momentum, which has yielded “game-changing” employment figures, with all signs said to be pointing to an official cash rate rise to as much as 0.75 per cent by the end of 2023.
According to the bank’s chief economist, Bill Evans, the strong economy will outweigh the RBA’s current lower for longer sentiment, pushing an official rate rise well ahead of the bank’s schedule.
“We now expect that the RBA will assess that it has achieved the conditions necessary for the first interest rate hike by the first quarter of 2023,” he explained.
In fact, Westpac believes three rate rises will occur prior to the end of 2023 – an increase of 15 basis points in Q1, to be followed by a further 25-basis-point lift in Q2, and a final 25-basis-point hike in Q4.
Mr Evans said the bank’s expectations are very much centred on the “very strong labour market”, with the RBA previously expressing its desire to see unemployment reach between 4 to 4.5 per cent before it considers a rate lift.
“The May employment report is a major ‘game changer’ for policy. It underscores the strength of momentum in the economy and endorses the range of other measures pointing to a very strong labour market,” he explained.
“The recovery is now clearly into a self-sustaining upswing, and the need for emergency stimulus policies has eased significantly.”
The chief economist was quick to highlight that the jobless rate is expected to keep subsiding, as the economy enters a self-sustaining upswing.
“With the starting point for the unemployment rate now at 5.1 per cent, rather than the 5.5 per cent we had previously expected for May 2021, we now forecast that the unemployment rate will reach 4.0 per cent by June 2022 and will drift down through the second half of 2022 to reach 3.8 per cent by year’s end,” he continued.
Mr Evans added, “Reaching full employment much earlier than previously expected points to upward pressure on both inflation and wages growth. We now expect underlying inflation to reach 2.25 per cent and wages growth to reach 2.75 per cent by December 2022.”
Noting that while not all of the RBA’s previous preconditions will be met by 2023, Mr Evans opined that the “sustainably above 3 per cent” wage growth condition, which had been used as a guideline in some of the governor’s speeches, is no longer a requirement.
On the contrary, Mr Evans believes the key conditions for raising rates are “actual inflation is sustainably within the 2-3 per cent target range” and “return to full employment”, both of which Westpac expects to be met by end 2022.
“We think there may be some flexibility around the 3 per cent wages growth condition,” the economist concluded.
About the author
About the author
Banking
Banks report $14.4bn profit amid pressure on net interest margins
Australia’s major banks have reported a significant boost to their bottom lines and returns in the first half of the 2022 financial year, signaling sector-wide resilience despite persistent pressure...Read more
Banking
Major banks report rising profits
NAB and ANZ announced their half-year results this week. ...Read more
Banking
Modernisation of direct debit system suffers setback
According to the Reserve Bank (RBA), several major banks will not be able to meet the current timeline for the launch of the PayTo service. ...Read more
Banking
Australians' trust in digital providers has decreased in last five years
Australians have little trust in organisations keeping their information secure, but the financial services industry still sits atop the list. ...Read more
Banking
Commonwealth Bank chairman to retire in August
The Commonwealth Bank (CBA) board has announced a successor. ...Read more
Banking
Westpac responds to $113m penalty
The big four bank has responded to the penalty handed down last week. ...Read more
Banking
Westpac ordered to pay $113m for ‘widespread compliance failures’
Westpac has been ordered to pay penalties in the amount of $113 million for widespread compliance failures across multiple businesses, including Westpac’s banking, superannuation, wealth management ...Read more
Banking
Big bank-backed start-up raises $12.75m
A landmark fundraise by Australia’s biggest banks has secured a war chest of $12.75 million to the sector’s blockchain consortium, Lygon, to bolster its research and development into helping banks...Read more
Wrapping up an eventful 2021
Listen now
What Omicron means for property, and are units right for first-time buyers? What is equity crowdfunding? Are industry super funds tapping into member funds to save their skins?
Listen now
Will housing affordability improve in 2022? Will buy now, pay later become the norm? Why are Aussies staying in failing super products?
Listen now
Who really benefits from crypto ETFs? How will the RBA respond to rising inflation? Could a mandate help address unpaid super?
Listen now
Banking
Banks report $14.4bn profit amid pressure on net interest margins
Australia’s major banks have reported a significant boost to their bottom lines and returns in the first half of the 2022 financial year, signaling sector-wide resilience despite persistent pressure...Read more
Banking
Major banks report rising profits
NAB and ANZ announced their half-year results this week. ...Read more
Banking
Modernisation of direct debit system suffers setback
According to the Reserve Bank (RBA), several major banks will not be able to meet the current timeline for the launch of the PayTo service. ...Read more
Banking
Australians' trust in digital providers has decreased in last five years
Australians have little trust in organisations keeping their information secure, but the financial services industry still sits atop the list. ...Read more
Banking
Commonwealth Bank chairman to retire in August
The Commonwealth Bank (CBA) board has announced a successor. ...Read more
Banking
Westpac responds to $113m penalty
The big four bank has responded to the penalty handed down last week. ...Read more
Banking
Westpac ordered to pay $113m for ‘widespread compliance failures’
Westpac has been ordered to pay penalties in the amount of $113 million for widespread compliance failures across multiple businesses, including Westpac’s banking, superannuation, wealth management ...Read more
Banking
Big bank-backed start-up raises $12.75m
A landmark fundraise by Australia’s biggest banks has secured a war chest of $12.75 million to the sector’s blockchain consortium, Lygon, to bolster its research and development into helping banks...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
