(Bloomberg) -- Westpac Banking Corp. Chief Economist Bill Evans expects the Reserve Bank of Australia will raise borrowing costs by 50 basis points at its next two meetings and reach a terminal rate of 2.6% in February.
Evans revised up his August forecast to a half-point hike from a previous 25-basis point move to reflect “what is expected to be a very unsettling June quarter inflation report,” a research note showed Thursday. That in turn lifts his terminal rate and brings it broadly in line with the RBA’s 2.5% guidance.
“Australia’s soft landing will allow the RBA to hold rates steady in 2023 and 2024 as inflation gradually eases back,” he said “We accept that our forecasts for the cash rate assume a successful navigation of a very narrow path towards a soft landing.”
Governor Philip Lowe this week warned Australians need to gird for higher rates as the RBA forecasts inflation will accelerate to around 7% in the fourth quarter from 5.1% in the first. Most economists expect the central bank will raise rates by a half-point in July, having hiked by the same amount in June.
Lowe, in comments Tuesday, urged Australian wage setters to keep pay gains to around 3.5%, warning higher increases would make it harder to return inflation to the 2-3% target. He spoke after the industrial relations umpire last week raised the minimum wage by a larger-than-expected 5.2%.
Evans also acknowledged the “unsettling” nature of large pay increases.
“That is why it is so important for the RBA to be decisive in the early stages of the tightening cycle with that clear message that it is committed to containing inflation risks,” he said. “A swift move into the neutral zone is a critical step.”
The RBA’s cash rate currently stands at 0.85%.
©2022 Bloomberg L.P.