Analysts at the Commonwealth Bank of Australia are forecasting a 25bp rate hike at the November (1st) Reserve Bank of Australia meeting.
CBA couch their call in the context of CPI data due from Australia this week (on Wednesday 26th October):
- High inflation is the main issue for central banks globally. Most major central banks have tightened monetary policy swiftly in an effort to put downward pressure on aggregate demand and in turn inflation. But monetary policy operates with a lag and inflation takes time to respond to changes in interest rates.
- The RBA is currently an inflation fighting central bank having delivered an incredible 250bp of tightening in just five months since May 2022. But the RBA became the first major central bank to reduce the size of rate rises in October when the Board increased the cash rate by 25bp, in line with our call (note that this move was a surprise to the market as ~44bp was priced ahead of the meeting). The Board settled on 25bp because of the risks to global and domestic growth and the potential for inflation to subside quickly.
- We expect inflation pressures to abate relatively swiftly in 2023. But in the near term the annual rate of inflation will push higher. Indeed the upcoming Q3 22 CPI, due to print on 26 October, is expected to show that inflation pressures remained red hot over the September quarter. This means that monetary policy will be tightened again at the November Board meeting. We consider our forecasts for
both headline and underlying inflation to be consistent with the RBA increasing the cash rate by 25bp at the November Board meeting.
The RBA cycle so far: