RBC: Raises RBA terminal rate forecast to 3.6% from 3.1%

Su-Lin Ong, head of economics and fixed income strategy at RBC in Australia, highlighted three reasons for raising the RBA‘s terminal rate forecast:

1. The market expects the Fed‘s terminal interest rate to be 5-5.25%;

2. Australian inflation has risen, making its headline and core inflation forecasts slightly higher for 2022, but higher for 2023;

3. The pace of rate hikes by the RBA has slowed to 25 basis points in the past two meetings, raising the risk that this could be a longer rate hike cycle with a higher rate peak.