By James Glynn


SYDNEY--The Reserve Bank of Australia is nearing a pause in interest rate increases, having pummeled the economy with consecutive monthly tightenings stretching back to May.

Tapas Strickland, the head of market economics at National Australia Bank, said that a number of factors are now working in favor of the RBA putting on hold further increases from April.

"Five key developments have occurred, which while still seeing the RBA hiking rates by 25 basis points in our view in February and March, firms our view of a pause thereafter," Mr. Strickland said.

NAB's scenario would see the official cash rate peak at around 3.60%.

Among the recent developments, Australia's labor supply is recovering sharply as migration rebounds, Strickland said. Total population is again increasing, while data from employment portal SEEK shows labor market tightness has eased.

Global supply chains continue to heal, adding to the RBA's cautious optimism that a sustained decline in inflation was expected in 2023, Mr. Strickland added. Recent trade data shows lower global freight costs are now being seen by Australian importers.

China, Australia's biggest export partner, has also pivoted to living with Covid at least three to four months earlier than many had imagined. The pivot should reduce risks to global growth, Mr. Strickland added.

Despite recession-like confidence levels, the Australian consumer remains resilient amid very strong retail sales and still solid anecdotes from the Christmas trading period, but this is expected to reverse in the second quarter, he said.

The U.S. Federal Reserve is also likely to start to discuss what they need to see to pause the hiking cycle. NAB's view is the Fed hikes in February and March, pauses thereafter and then starts cutting rates in H2 2023.

Australia's fourth-quarter inflation report will be published on Wednesday. A higher-than-expected outcome would likely see NAB put back the expected pause in rate until later in the year.


Write to James Glynn at James.Glynn@WSJ.com


(END) Dow Jones Newswires

01-23-23 1853ET