UBS economist forecasts budget deficit will prompt 2023 home loan rate rises

UBS now see the risk of an earlier rate hike than the RBA's forward guidance of 2024

UBS economist forecasts budget deficit will prompt 2023 home loan rate rises
UBS economist forecasts budget deficit will prompt 2023 home loan rate rises

The Reserve Bank of Australia may raise the cash rate earlier than its signalled 2024 plan due to the size of the fiscal stimulus announced in the Federal Budget, according to UBS.

UBS Australia chief economist, George Tharenou said the persistence of fiscal stimulus continuing for several years will put upward pressure on wages and inflation.

"So even with softer US payrolls delaying Fed tapering, the budget means the RBA should be more willing to taper ahead of the Fed, and hence we still expect the RBA will likely announce a taper in July, with QE3 'up to $100bn', and slower purchases until stopping around year end; as well as not extending yield curve control beyond Apr-24," he said. 

 

"We still expect the RBA to hold the cash rate until end-22, but we now see the risk of an earlier rate hike than the RBA's forward guidance of 2024.”

Tharenou estimated the budget contained A$96 billion in extra stimulus over five years, leading to the desired and expected upward pressure on wages and inflation.

During its last cash rate announcement RBA governor Philip Lowe said that while the central bank was increasingly confident about the economic outlook and would likely end its term funding facility to banks, it was still “unlikely” to raise the 0.1% cash rate before 2024.

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

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