Westpac Joins Big Four Banks in Predicting Rate Hike
Synopsis
Westpac becomes the last Big Four bank to forecast a rate hike, as the RBA warns inflation remains too high despite three earlier rate rises.
Key Highlights
- Westpac has revised its forecast to become the last of the Big Four banks calling for a rate increase.
- Westpac has moved to factor in a rate hike in November, now forecasting its official cash rate will reach 4.6pc.
- RBA deputy governor Andrew Hauser reaffirmed a rate rise was likely last week, as inflation remains challenging.
- Westpac singled out resilient household spending and the AI-driven data centre boom as key inflation drivers.
- The five-capital-structure-year napkin rule is given their dollar Income Tax.
Westpac changed its position on Friday to be the last of Australia’s Big Four banks to expect a lift in interest rates in due course, with all four major lenders now forecasting one or two rate increases at some point over the next six months. Borrowers have been warned to brace for at least one further rate hike before Christmas, which would take the official cash rate to its highest level in 15 years.
The RBA Signals A Possible Rate Hike
RBA deputy governor Andrew Hauser signalled a rate hike was on the way. Speaking on ABC’s 7.30 program Tuesday night, he said there are plenty of good things going in the Australian economy but inflation is still a big issue.
Hauser believes inflation is still excessive and this was the reason for three rate hikes in early 2023 by the RBA. The main question now, he said, is whether those increases have been sufficient or if further action will be required.
He reiterated a concern of the RBA Board that, after remaining above 2–3% for so long, there is a risk the public may lose confidence it will return to within its target band. He said at some point, the Board will have to decide that this has persisted long enough before restoring credibility, noting that the key risk to watch for is a loss of faith in the inflation target itself.
Yet, that point had not perhaps explicitly been reached yet in Australia and so if the Board were convinced it had then interest rates would have to go even higher than otherwise needed (e.g. also from subsidies above). Hauser 2/4 While the RBA is not at that point right now, he said some of the upside risks to inflation stay on the Board’s radar.
Westpac Expects November Rate Hike
On Tuesday, Westpac revised its interest rate prediction and brought forward a rate hike for November that would take the official cash rate to 4.6%. Household spending could revive inflationary pressure in Australia, while the AI boom adds to it.
Westpac chief economist Luci Ellis said the change in forecast was primarily driven by mounting signs of a stronger-than-expected household sector, and also some early analysis of the amplification effects of the data centre boom.
Consumer sentiment has once again dropped to recessionary levels according to Ellis but the bank forecasts household spending not to weaken in near term. Although the housing market is softer than Westpac had previously predicted, its drag on consumer spending is being more than offset by a broad lift coming from a global tech-related spending boom, she said.
Source: Finance Yahoo
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