"We see this in Australia, we see it across every developed market we track." (Reporting by Lewis Jackson; Editing by Lincoln Feast.)
@lewjackk)) By Lewis Jackson
SYDNEY, Feb 16 (Reuters) - Australia's central bank
could take rates as high as 5%, well above market forecasts, to
combat inflation likely to hit levels seen in the United States
and parts of Europe, according to the chief economist at the
world's second biggest asset manager.
Vanguard global chief economist Joe Davis said labour market
signals, including the gaps between unemployment and job
openings, suggest the Reserve Bank of Australia's (RBA) policy
stance is "not close" to restrictive yet. A cash rate between
4.5% and 5% would not be surprising, although it is not the base
case, he added.
While the central bank has lifted rates by a hefty 325 basis
points to 3.35% since May, that is well short of annual
inflation at 7.8% and Davis argues wages growth has yet to peak.
"Australia is not at the same level as we see in the United
States and parts of Europe but given the indicators it's going
there, with very high likelihood," said Davis at a media
briefing in Sydney on Thursday. "I think they're behind in the
cycle," he said, referring to the central bank.
Vanguard manages $8 trillion, most of it in index funds.
Markets expect rates to peak around 4.1% in the middle of
the year before declining in 2024. Fresh jobs data on Thursday
showed a labour market already showing signs of slowing.
But Davis warned investors had a track record of
underestimating how far rates would rise and how long they would
stay high. Widespread expectations that inflation in the
developed world would quickly return to 2% were unrealistic, he
added.
"We have been consistently ahead of the central banks and
the bond market because they are underestimating the supply
demand imbalance, particularly in the labour market," said
Davis, who is also head of Vanguard's investment strategy group.
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