The RBA published its updated forecasts in Friday’s Statement on Monetary Policy. Between now and mid-2024, growth and inflation have been revised down. But with the inflation gap remaining positive, economic fundamentals signal that another rate hike may be needed by the end of the year and possiblly in H1 2024 too according to our policy reaction function. Easing is not yet on the horizon.

• Based on the RBA’s forecasts, the output gap should close by Q1 next year and show spare capacity from Q2 on. With the inflation forecast to remain above the mid-point of the target band over the RBA’s forecast horizon to end 2025, the inflation gap remains positive and thus limits the potential for monetary easing.
• The equation estimates that rates may peak in mid-2024 at around 4.5% and then stay there over the rest of the year. This is higher than the May estimate and also than AUD OIS market pricing of a peak of 4.2% falling to 4% by year end.
• With house prices rising again, our equation that includes them is now in line with the first estimates that have the cash rate peaking at around 4.5% in mid-2024.

Source: MNI - Market News/Refinitiv/RBA

RBA cash rate estimations vs AUD OIS market pricing %

Source: MNI - Market News/Refinitiv/RBA/Bloomberg