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CBA head of Australian economics Gareth Aird. Source: Commonwealth Bank of Australia.
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  • Commonwealth Bank brings forward its projection for the Reserve Bank’s first interest-rate rise by six months to November 2022 on the back of high vaccination rates
  • According to CBA, GDP growth will be 3.5 per cent in 2021 (up from three per cent earlier) and 4.4 per cent in 2022, from four per cent previously
  • CBA anticipates underlying inflation of 2.5 per cent per year by mid-2022, which is in the middle of the RBA’s target band of between two and three per cent
  • CBA has pencilled in a first increase of 0.15 per cent in November 2022, then increase 0.25 per cent in December 2022, which would take the cash rate to 0.5 per cent

After boosting its economic outlook in reaction to the nation’s “remarkably high” vaccination rate, Commonwealth Bank has brought forward its projection for the Reserve Bank’s first interest-rate rise by six months to November 2022.

According to CBA, GDP growth will be 3.5 per cent in 2021 — up from three per cent earlier — and 4.4 per cent in 2022, from four per cent previously.

CBA anticipates underlying inflation of 2.5 per cent per year by mid-2022, which is in the middle of the Reserve Bank of Australia’s (RBA) per cent target band of between two and three per cent.

Trimmed mean inflation, the RBA’s preferred gauge of inflation, increased to 2.1 per cent in the third quarter, up from 1.6 per cent the previous period.

“Our call prior to the delta outbreak was that the RBA would commence normalising the cash rate in November 2022,” CBA’s head of Australian economics Gareth Aird said.

“We pushed that out to May 2023 in late July because we thought that ‘living with COVID’ would set the economy back around six months compared to its pre-delta path.

“However, given vaccination rates have significantly exceeded our expectations we think the economy will be back on its pre-delta path a lot sooner.

The RBA has been adamant that the central bank will not increase the cash rate until inflation and wage growth hit the two to three per cent range.

“It is not enough for inflation to be forecast in this range,” RBA governor Philip Lowe said in July. “We want to see results before we change interest rates.”

Later in September, Mr Lowe added it won’t be enough for inflation to “just sneak across the two to three per cent line for a quarter or two.”

Mr Aird, however, said the RBA has “effectively raised the hurdle for a rate hike in recent months.”

“The RBA’s explicit shift to see actual inflation around the middle of the target and before raising the cash rate is indicative of their desire to make sure the below target outcomes in the years prior to the pandemic are not repeated,” he added.

“The RBA wants to reset inflation and wage expectations higher so they will be deliberately late to hike the cash rate.”

CBA has pencilled in a first increase of 0.15 per cent in November 2022, followed by an increase of 0.25 per cent in December 2022, which would take the cash rate to 0.5 per cent.

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