Commonwealth Bank of Australia (CBA) economists expect interest rates will rise from November 2022, well ahead of the 2024 timeline currently forecast by the Reserve Bank of Australia (RBA).

The Banks economists believe strong labour market conditions and wage growth mean the RBA will need to begin normalising monetary policy in late 2022 with a cash rate increase to 0.5 per cent, peaking at 1.25 per cent by Q3 2023.

CBA Head of Australian Economics Gareth Aird said: “The Australian labour market has tightened at a phenomenal pace and underutilisation in May was at its lowest since early 2013.

“The forward looking indicators of labour demand are very strong yet labour supply is constrained, which means the labour market will continue to tighten very quickly and wages growth will accelerate.

“The Commonwealth fiscal stance as well as the targeted level of net overseas immigration in 2022/23 will have a large bearing on nominal wage outcomes and therefore the path of interest rates.

“For the past six months CBA’s economic forecasts for the Australian economy have been at odds with the RBA’s “2024 at the earliest” forward guidance on the cash rate given the strength of the economic data. Our message has been consistent and unswerving: the labour market will tighten quickly and this means that wages and inflation will lift, particularly because the supply of labour is constrained.

“There are scenarios that could see the RBA pull the rate hike trigger earlier than November 2022, particularly if they tweak their reaction function because it becomes irrefutable that wages growth is on a path to 3 per cent per annum - the rate of growth they have targeted.”

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