The Westpac Banking Corp (ASX: WBC) economist team have outlined what they think the RBA will do with interest rates.
Earlier this week, the Reserve Bank of Australia (RBA) decided to hike the cash rate by another 25 basis points (0.25%) to 4.60%.
The RBA said in its statement that inflation remains elevated and some of the risks it highlighted in August are playing out.
It noted global energy prices are higher, while AI-related demand is driving an increase in global prices of technology-related goods.
The RBA also noted that businesses that are experiencing cost pressures are either increasing the prices of their goods and services or looking to do so.
The RBA wants to ensure that high inflation does not become embedded, so therefore total demand need to “remain subdued for a period to reduce capacity pressures and bring inflation back to target.”
Despite interest rate rises this year, inflation is still too high according to the RBA.
Westpac thinks interest rates are going to rise again
The ASX bank share’s economist team thinks that based on commentary by the RBA, a November rate hike is now its base case, unless there’s a lasting resolution of the Middle East conflict beforehand or another event that significant reduces the outlook for energy-related costs in Australia.
Westpac highlighted that the decision is unanimous, suggesting that any qualms external Monetary Policy Board (MPB) members (IE not the internal RBA board members) might have had about the RBA’s downbeat view of supply capacity were overruled by resurgent oil prices and the stronger-than-forecast CPI and GDP data.
However, after that, the bar for hikes is “much higher” following multiple interest rate rises. Westpac noted that the labour market is “easing” and the housing market will likely “weaken further”.
Time will tell what happens with interest rates, but it certainly seems as though there’s a significant chance of another rate rise later this year.
