With the RBA now in a game of tag to combat inflationary pressures, CommBank economists have revised a number of forecasts for the remainder of 2022 and 2023.
Higher inflation has prompted CommBank economists to make a large downward revision for real household consumption and overall GDP.
GDP growth is forecast to be an annual 3.5% in 2022, down from 4.7% previously - and a below-trend 2.1% in 2023, again down from a previous forecast of 3.1%.
CommBank Head of Australian Economics Gareth Aird said the anticipated slowdown in GDP growth throughout 2023 will see the unemployment rate trend higher, with an anticipated rate of approximately 4.5% by the end of 2023.
Australia's unemployment rate currently sits at 3.9% - the lowest rate since 1974.
"Australia’s current economic boom has a little further to run and the labour market will remain tight so we don’t foresee a bust," Mr Aird said.
"But growth momentum is anticipated to slow materially by late 2022 due to a swift and aggressive RBA tightening cycle.
"Deeply negative real wages growth will also weigh on the volume of spending over the rest of 2022."
Mr Aird noted that the RBA's decision to raise the cash rate by a larger than anticipated 50 basis points at the June meeting indicates the Board has made the decision to front load the tightening cycle.
"We now expect a further 50 basis point rate hike in July followed by 25 basis point hikes in August, September and November that will see the cash rate target at 2.10% by the end of the 2022," Mr Aird said.
"Our previous profile for the cash rate to be gradually raised to 1.6% by February 2023 reflected what we thought the RBA would deliver, which we also assessed to be the right policy path.
"But ultimately it does not matter what we think, it is about what they do."
CommBank, ANZ at odds over what's next
Based on the expectation for the RBA to front load the tightening cycle, Mr Aird believes we will see no further rate hikes in 2023.
"Financial conditions will continue to tighten over 2023 even if the RBA does not take the cash rate higher over the year given the large fixed rate home loan expiry schedule," he said.
"Fixed rate borrowers will be rolling off an average fixed rate mortgage of around 2.25% onto a rate with a 4-handle in 2023 based on our forecast profile for the cash rate, which will result in a very big step change in the interest cost on debt.
"Our expectation is that economic momentum will slow significantly under the weight of a contractionary monetary policy setting in 2023.
"As such we expect to see policy easing on the agenda, with 50 basis points of rate cuts penciled into the second-half of 2023."
See More: $89 billion of CBA fixed rate home loans set to expire next year
ANZ Head of Australian Economics David Plank offers a differing view, noting we should expect to see the RBA pushing the cash rate 25 basis points higher in February 2023, following a rise to 2.35% in November 2022 as it takes out a bit more insurance against inflation.
"We doubt a cash rate of 2.6% will be enough to pull inflation back sustainably within the 2–3% target band, given the current tightness of the labour market, unless the global outlook weakens materially," Mr Plank said.
"After a rate hike in February 2023 that takes the cash rate target to 2.6%, we have the RBA placing the cash rate on hold until later that year as it waits to see clear evidence inflation is heading back toward its target band.
"We don’t see that occurring, which is why we expect a couple more rate hikes will be required to slow the economy below trend from around mid-2024."
Macquarie Bank's head of global strategy Viktor Shvets previously said central banks will go through a cat-and-mouse cash rate game over the next 20 years as they battle inflation and slow economic growth.
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