Domestic Data, Not SVB Collapse, In Focus For Rate Hikes In Australia - Top Bank Analysts

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. [0#RBAWATCH]

"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". [FEDWATCH]

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. [.AX]