And here's how high the rate will reach, according to bank's economist
If the prognostications of Goldman Sachs’ top economist are correct, Australia will see five more interest rate hikes over the next six months, with the rate topping out at 4.1% before dropping steeply during 2024 as the economy slows.
Goldman Sachs chief economist Andrew Boak, who was one of just three economists to predict the Reserve Bank’s aggressive move to half-percentage-point hikes in June, said it was likely that the central bank would drag out rate rises well into next year, The Australian Financial Review reported.
With a review of the RBA set to issue a report in March 2023, Boak said policymakers would find themselves in the uncomfortable position of standing still early next year while inflation remains high.
“We do not expect the RBA will risk falling too far behind a synchronised global tightening cycle,” Boak told AFR. “All considered, we now expect plus-25-basis-point rate hikes each month to May 2023 (inclusive) – to a terminal rate of 4.1 per cent (prior: 3.6 per cent) – followed by 110 basis points of easing over 2024 to 3 per cent.
“In context, our revised terminal rate forecast sits around the hawkish extreme of peer economist expectations, but is broadly in line with pricing in financial markets,” Boak said. “We see risks to our forecast in both directions.”
Shane Oliver, chief economist at AMP Capital, has warned that an interest rate of around 4.2% would likely push the economy into a recession and drive home prices down by 30%, shaking the nation’s financial stability, AFR reported.
Boak is predicting a 15-20% peak-to-trough drop in housing prices, but he said the fall would be “orderly and manageable” and that a large pool of savings would soften the effects of the rapid rate rises for many homeowners.
Goldman Sachs is the most recent bank to revise its forecast for peak inflation after a surprise result of 7.3% in the September quarter caused the RBA to update its own predicted peak to 8% this year, AFR reported.
Westpac and ANZ both project the cash rate will peak at 3.85%. NAB is forecasting a 3.6% peak, and Commonwealth Bank sees the rate topping out at 3.1%.
