SYDNEY (Reuters) - Westpac on Friday lifted its forecast for Australia's cash rate peak to 4.6%, tipping quarter-point hikes in July and August, joining other major banks that are expecting higher rates and slower growth as the central bank turns more hawkish.
Rates are already at an 11-year high of 4.1%, but the Reserve Bank of Australia (RBA) has said more hikes may be required to tame inflation. Governor Philip Lowe last week warned of upside risks that would derail inflation's return to the central bank's 2% to 3% target by mid-2025.
A blockbuster labour force report on Thursday showed employment rising beyond expectations despite the policy tightening to date. In its wake, markets are pricing in a split chance of a rate hike in July, while wagering rates will reach 4.6% by November.
"The evidence of strong ongoing momentum in the labour market is sufficient to trigger the 'considerable risk' of an August rate hike in our central forecast," said Bill Evans, Westpac's chief economist.
"Given the higher interest rate path than we expected in March, it is reasonable to have considered an even larger downside revision to our growth forecasts."
The bank now sees economic growth slowing to 0.6% this year, from a previous forecast of 1%, and the unemployment rate hitting 5.3% by the end of 2024, up from 3.6% in May.
Economists at National Australia Bank (OTC:NABZY) and ANZ Group had already forecast the RBA would lift rates to 4.6%.
The Commonwealth Bank of Australia (OTC:CMWAY) expects one more hike in August to 4.35%, although its economists said a strong inflation reading due on June 28 could tip the balance on its current steady call for July.