(Bloomberg) -- Commonwealth Bank of Australia (OTC:CMWAY) brought forward its forecast for the Reserve Bank’s first interest-rate increase by six months to November 2022 after upgrading its economic outlook in response to the nation’s “remarkably high” vaccination rate.
CBA now sees the economy expanding 3.5% this year, versus a previous 3%, due to the earlier reopening of New South Wales and Victoria states amid rapid vaccination take up, according to a research note released Thursday. The bank also boosted its growth forecast for 2022 to 4.4% from a prior 4%.
“Vaccination rates will be a key driver of health outcomes from here and that in turn will influence economic outcomes,” CBA’s Gareth Aird said, adding a 95% nationwide vaccination rate is a real possibility. “This will make Australia one of the most vaccinated countries in the world. And crucially it will mean ‘living with Covid’ will be a lot less disruptive.”
More than 85% of people aged over 16 in New South Wales are fully vaccinated and Victoria began reopening last week after protracted lockdowns in the nation’s two most populous states. While that’s likely to see the national economy contract sharply in the third quarter, Aird predicts a 2% rebound in the final three months of this year.
Aird, head of Australia Economics at CBA, forecasts unemployment will drop to 4% at the end of 2022, a level RBA officials say should begin to trigger faster wage growth and inflation. Already, signs of price pressures are emerging: third-quarter data Wednesday showed core inflation surprisingly jumped back into the RBA’s 2-3% target for the first time since 2015.
Aird said Wednesday’s data was an “inflection point,” predicting underlying inflation will rise to 2.5% by mid-2022. He expects the RBA will wind down its bond-buying from February to May next year and could end its three-year yield target as early as next week.
The RBA will raise the key rate to 0.25% in November 2022 from the current record-low 0.10%, according to CBA. That is likely to be followed by a 25 basis point increase in December and a further three hikes over 2023 and 2024.
The central bank’s board hold its November policy meeting on Tuesday and releases updated quarterly economic forecasts three days after that.
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