PHOTO: Westpac. SUPPLIED
According to Westpac, it is anticipated that inflation will persist above the Reserve Bank’s target range of 1 to 3 percent throughout 2024. There is a possibility of an official cash rate (OCR) increase in the first half of the upcoming year.
Westpac’s chief economist, Kelly Eckhold, noted, “While we are observing a decrease in imported goods and food inflation, domestic price pressures continue to remain high. We are still forecasting an extended period of economic growth below the trend.”
Eckhold highlighted that rising interest rates would continue to strain household budgets, as a significant portion of prior rate hikes is yet to be felt by borrowers.
He mentioned that the new government might adopt fiscal tightening measures to restore budget balance, which could help alleviate inflationary pressures. Nevertheless, budget deficits are expected to persist in the coming years, forcing the government to make challenging decisions, especially considering the surge in demand for essential public services and infrastructure due to population growth.
Eckhold emphasized that robust migration would support economic expansion, as population growth is currently at historically high levels, contributing to both demand and the economy’s productive capacity. Although long-term interest rate increases will temper future house price growth to some extent, the impact of population growth will remain significant. Westpac anticipates an overall 8 percent increase in house prices throughout 2024.
He also noted that China’s challenges for exporters and weak commodity prices would persist, leading Westpac to revise down the rate at which commodity prices are expected to rebound in the coming years.
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Westpac foresees another OCR hike in the first half of the next year, followed by gradual rate reductions starting in early 2025. Eckhold emphasized the necessity for further monetary policy actions to ensure timely inflation reduction. However, he acknowledged significant market risks that could lead to adjustments in interest rates, either upward or downward.
He concluded, “It’s crucial for both ourselves and the Reserve Bank to closely monitor the data to adapt to changing circumstances.”