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If the labor market remains firm and there is evidence that higher labor costs are being passed on, this sets the stage for the RBA to raise interest rates in November. Currently, we think the RBA cash rate will peak at the current level of 4.10%, but there are upside risks to this forecast. Upside risks come from higher housing prices (through the wealth channel) and higher oil prices supporting consumption.
Given that we believe the RBA cash rate will peak earlier and lower than our previous forecast of 4.85%, expect the RBA to remain on hold for longer. We are now delaying the timing of the rate cut from the second quarter of 2024 to the third quarter of 2024.
