NAB still sees 2 rate hikes from the RBA this year

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While other forecasters are abandoning their calls for the Reserve Bank of Australia (RBA) to lift interest rates this year, the National Australia Bank (NAB) isn’t willing to go down that path yet, retaining the view that the first of two 25 basis point increases will arrive in August.

“The RBA has indicated that it is in no rush to raise rates in lock-step with global central bank counterparts. However, lower unemployment, and evidence of wages growth moving upwards — even gradually — should be enough to give the RBA confidence that inflation will eventually lift above the bottom of the band,” sais Alan Oster, NAB Chief Economist, in a note released today.

“We continue to forecast two 25 basis point rate hikes in August and November, although acknowledge the risks are that these hikes could be delayed.”

Oster attached a couple of caveats to the call, among the most aggressive of all forecasters tracked, noting that a slowing in household credit and house prices due to macro-prudential measures implemented by APRA “may help alleviate some concerns about household debt”.

He added that a “higher AUD may also threaten this outlook although our revised forecasts are for the currency to be 75 US cents by year end”.

In a speech last week, RBA Governor Philip Lowe said the bank sees “further progress in reducing unemployment and having inflation return to the midpoint of the target range”, adding that it was “likely that the next move in interest rates in Australia will be up, not down”.

Crucially, he admitted that “while we do expect steady progress, that progress is likely to be only gradual.

Financial markets don’t expect the RBA to begin lifting interest rates until early 2019.

NOW READ: The RBA just gave plenty of reasons why it’s not in a rush to lift interest rates

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