ANZ sees chance official cash rate may go up in August but Jarden says cool it

Wednesday, 7 July 2021

What does the official cash rate mean?

ANZ has raised the prospect that the Reserve Bank could hike the official cash rate next month, in what would be an unwelcome surprise for mortgage holders.

Banks have been rushing to bring forward the expected day when the Reserve Bank will begin raising interest rates, in the wake of stronger-than-expected economic data and inflationary expectations.

Westpac and ANZ on Wednesday joined BNZ and ASB in bringing forward their expectation of a rate rise to November 24, when the Reserve Bank will issue its final monetary policy statement for the year.

But ANZ sees a chance the central bank might move as early as August 18.

* ANZ tips rates rise in February after 'spectacular' 1.6% jump in GDP

* Reserve Bank expected to stay on course on Wednesday as winds shift

Mortgage holders have been warned rates will go higher.

The Reserve Bank’s monetary policy review next Wednesday, inflation figures due out on Friday week, and labour market data on August 4 would be key as the market weighs up the odds of the first hike in November “or even toys with the possibility of next month”, the bank said.

Chief economist Sharon Zollner said it did not matter too much what the published forecasts were.

“I think everyone is on the same page really that the risks are that the bank decides ‘the sooner, the better’, because that is certainly my view.”

BNZ research head Stephen Toplis said on Tuesday that the economic data supported the Reserve Bank raising the rate now but expected that would be “a leap too far” for the central bank.

Jarden senior economist John Carran says talk of official cash rate hikes may be premature.

Jarden analyst John Carran believed expectations of interest rate rises were getting ahead of themselves.

The Reserve Bank would be cautious about raising rates too far ahead of the United States Federal Reserve and the Reserve Bank of Australia because of the impact that could have on the dollar, he said.

There was also a possibility that inflationary pressures might recede without early action from the Reserve Bank, he said.

Carran believed there was only a low chance that the Reserve Bank would raise the rate before May.

Past experience had been that supply-side constraints in the economy tended to result in only short-term inflation, he said.

“I just can’t see the Reserve Bank – given the caution that they have shown in the past and that they have reiterated – suddenly jumping to hike rates over a year earlier than they indicated based on supply issues that there is a lot of uncertainty around.

“They don’t know how it is going to pan out; they don’t know when the border is going to open or when shipping issues are going to fully resolve themselves. My feeling is they are going to be a bit more circumspect,” he said.

Zollner said that even though it was possible “something bad might happen”, such as a lockdown next week, “you have got to ask yourself if we are doing ourselves any favours by encouraging people to take more risk and borrow more money now?”

The lesson from the past had been “don’t hike too late, because then you end up having to hike more”, she said.