By Sameer Manekar and Mehr Bedi
March 14 (Reuters) - Australia's economic health will be
its central bank's compass for plotting the course of rate
hikes, as stringent regulation insulates its banking sector from
the collapse of Silicon Valley Bank (SVB) , analysts at
top domestic banks said.
With inflationary pressures still evident amid strong
business conditions, and a robust labour data expected later in
the week, domestic factors will be the key focus for the Reserve
Bank of Australia ahead of its meeting on April 4, even as it
continues to assess the fallout from SVB's collapse.
Analysts at three of the top four lenders - Commonwealth
Bank of Australia , National Australia Bank ,
and ANZ Group Holdings - continue to expect the RBA to
deliver its 11th consecutive rate hike next month. "The Australian domestic fundamentals remain consistent with
further tightening from the RBA," Adelaide Timbrell, senior
economist at ANZ Research said.
Analysts at the top three banks expect a quarter-point hike
in April, taking the cash rate to 3.85%, with two of the banks
forecasting it to peak at 4.10% in May.
Since May last year, the RBA has increased interest rates by
350 bps, fairly in lockstep with the U.S. Federal Reserve,
resulting in one of the most aggressive policy tightening cycle
in decades.
However, developments of the past few days could increase
the risk that global central banks may pause sooner than
expected, Timbrell suggested, as investors increasingly bet the
Fed would be reluctant to hike rates next week.
Australian banking sector, while not immune to the collapse
of SVB, is in a "more insulated" position, Rodrigo Catril,
senior FX strategist at NAB said.
"We are kind of watching this from a distance and we are
benefiting from that distance as well," Catril said.
Australian banks are some of the most well-capitalised in
the world, with regulatory structures in place ensuring an
"unquestionably strong" capital framework, proper governance,
resilience to rising interest rates, and higher lending
standards.
Globally, banking stocks have taken a hit from the collapse
of SVB despite of assurances from U.S. authorities, prompting a
reassessment of interest rate expectations.
CBA Chief Economist Stephen Halmarick, however, expects
quarter-point rate hikes in March and May from the Fed, citing
inflation in the U.S. "remains too high for the Fed". Local banking index has lost more than 5% over the
past three sessions, weighing significantly on the benchmark
index which has now lost all its gains made so far this
year. (Reporting by Sameer Manekar and Mehr Bedi in Bengaluru;
additional reporting by Upasana Singh and Himanshi Akhand;
editing by Eileen Soreng)
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