RBA will hike rates in 2023: Shane Oliver

AMP Capital economist Shane Oliver tips the first interest rate hike is likely to come in 2023, at least a year earlier than the RBA is currently signalling. Oliver noted the RBA's key message from its March meeting was that it still has a long way to go to meet its inflation and employment goals. The RBA has further signalled it still doesn’t expect a rate hike until 2024 and has accelerated its bond buying to keep bond yields down and will do more if needed. Oliver agrees that the RBA needs to push back against the sharp rise in bond yields as it could threaten the recovery and that a premature removal of monetary stimulus as suggested by the bond market (which is now factoring in nearly 4 rate hikes by early 2024) will risk seeing the RBA ending up continuing to fail to meet its inflation and employment goals. "That said, if as we expect the economy continues to surprise on the upside - it was around 1% stronger in the December quarter than the RBA expected just a month ago – the first rate hike is likely to come in 2023, at least a year earlier than the RBA is allowing. "That’s still a long way away though and in the meantime – maybe later this year or if not through next year – the RBA with APRA is likely to start tightening lending standards in the face of an increasingly hot residential property market in order to head off another potential threat to financial stability." Oliver's update noted December quarter GDP rose a stronger than expected 3.1%qoq; retail sales rose 0.5% in January and are up 10.6% on a year ago.