News: CBA Australia's CBA pushes back c.bank rate hike call due to Sydney lockdown

Economists at Commonwealth Bank of Australia (CBA) on Wednesday pushed back expectations for the country's next policy rate hike to May 2023, from late-2022, with a coronavirus lockdown in Sydney now expected to last another four weeks.

CBA now forecasts Australia's A$2 trillion economy ($1.5 trillion) will contract 2.7% in the current quarter, its first decline since June 2020.

ANZ Banking Group predicted Australia's gross domestic product (GDP) to fall 1.3% quarter-on-quarter compared with its previous estimate of 0.4% growth.

Some economists see a small risk of a recession - two back-to-back quarters of contraction - if Sydney's cluster of the highly contagious Delta variant continues to swell from roughly 2,400 infections now.

"The negative shock to the economy, particularly the labour market, over the next few months will mean that it takes a little longer for wages pressures to fully emerge," said Gareth Aird, head of Australia economics for CBA.

"This means that a tightening cycle is unlikely to commence until 2023," Aird said.

The Reserve Bank of Australia (RBA) has repeatedly said it will not raise interest rates until actual, not forecast, inflation was sustainably within its 2-3% target band. For that to happen, the RBA has said, the labour market will need to be tighter and wages growth "materially" higher.

The RBA holds its monthly policy meeting on Aug. 3 where it is widely expected to leave interest rates at a record low 0.1%.

"Our central scenario now has the RBA delivering the first hike in the cash rate in May 2023," Aird wrote in a note, predicting a 15 basis points (bps) increase.

That will be followed by an increase of 25 bps in June 2023. CBA has pencilled in three further 25 bps hikes in 2023 and early 2024 taking the cash rate to 1.25%, Aird added.