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(Bloomberg) — Australia’s central bank will raise interest rates one more time in its current tightening cycle, economists say, and then shift to policy easing next year as inflation cools and economic growth slows to a crawl.

The Reserve Bank will stand pat for two more meetings and then hike in November to take the cash rate to a 12-year high of 4.35%, a survey of economists showed. Still, three of the nation’s four major lenders dissented: with ANZ Group Holdings Ltd., Commonwealth Bank of Australia and Westpac Banking Corp. predicting the current 4.1% as the terminal rate. 

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From there, the median estimate is for the RBA to then switch to an easing cycle in the second quarter of 2024 to provide support to the economy as unemployment climbs and growth slows.

The central bank, in its quarterly Statement on Monetary Policy released Friday, left its key forecasts broadly unchanged. That suggests it “is more confident about its forecasts with data acting as expected,” Barclays Bank Plc economists said in a research note. “This also implies that data outturns will become more important for monetary policy decisions.”

The RBA has been more circumspect than global counterparts during the current tightening cycle, underscoring its desire to engineer a soft landing while bringing inflation back to target. Australia has increased borrowing costs by 4 percentage points, well behind the 5.25 points from the Federal Reserve and nearby New Zealand.

Australia’s central bank highlighted its alternative approach in Friday’s SOMP.

“In some comparable economies, core inflation (especially for services) has proven to be stickier than anticipated and policy rates have been raised further in response,” the RBA said. “In these economies, policy rates are generally at a higher level than the cash rate in Australia, yet Australia’s inflation rate is at least as high.”

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Su-Lin Ong, chief economist for Australia at Royal Bank of Canada, pointed out the implications of the RBA’s observation. 

“It does beg the question as to whether policy settings in all those comparable countries — the US, Canada, New Zealand and the UK — are wrong and too high or Australia’s are too low,” she said.

The RBA maintained its tightening bias in the quarterly update, with its forecasts based on the cash rate rising to 4.25% by year’s end. It warned of the risk of higher inflation expectations becoming embedded, observing that a tight job market is conducive to larger increases in wages and prices.

The RBA’s estimates showed headline inflation falling back within its 2-3% target by late 2025. It sees growth reaching a trough of 0.9% at the end of this year as rates restrain economic activity, while unemployment is seen climbing to around 4.5% late next year.

That weakness is why three of 18 economists see rate cuts beginning as early as the first quarter of 2024, while six predict easing will start in the three months to June. Commonwealth Bank sees rates at 3.1% at the end of 2024 — a level it considers to be “neutral.”

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