Global Financial Uncertainty Leaves Major Banks Split on RBA Rate Outlook

The global financial market is currently facing a state of anxiety and uncertainty, causing so much confusion for some of Australia’s largest banks regarding the future outlook for interest rates locally.

The Split Views of Major Banks

Westpac’s chief economist, Bill Evans, expressed his belief that the Reserve Bank (RBA) now has several reasons to pause in April. According to him, recent developments and signs of “soft” data provide enough evidence for the RBA to use its “pause option” in April.

On the other hand, ANZ economists are maintaining their opinion that the RBA will hike by 25 bp in April and May. They cited the “robustness” of data released during the past week as the reason for their confidence.

Arguments Supporting Both Sides

Westpac has altered its forecast from 4.1% to 3.85%, and they believe that the terminal rate is predictable after one more rate hike of 25 basis points in May. However, ANZ economists argued that domestic fundamentals support the case for further tightening, as developments offshore potentially spill over into the real economy.

ANZ economists emphasized that despite the current uncertainties, the robustness of the domestic data was reflected in the February labor force survey. This survey showed that unemployment fell to 3.5% alongside a strong gain in employment.

The Views of the RBA Governor

Earlier this month, RBA governor Philip Lowe confirmed that the central bank was nearer to a pause, and the board would be assessing monthly employment and business indicators, which have now been released.

Lowe stated, “If collectively, they suggest that the right thing is to pause, then we’ll do that. But if they suggest that we keep going, we will do that.”

However, this was before recent major global events, including the collapse of Silicon Valley Bank and the problems that Switzerland’s second-largest bank faced.

Related Facts

• The International Monetary Fund (IMF) reduced its global growth prediction from 3.5% to 3.3%.
• The European Central Bank projected €30bn monthly in bond buying activities.

Key Takeaway

The global financial market significantly influences Australia’s economy, and it’s crucial to monitor the situation carefully. The split views of major banks regarding the RBA’s rate outlook are because of the recent uncertainties.

Conclusion

The current economic situation is full of unpredictability and inconsistency, which means there is no straightforward answer regarding the interest rate outlook for Australia. As a result, the RBA, major banks, and businesses must closely monitor current global events and data to make informed decisions.