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The Reserve Bank of Australia’s (RBA) decision to hold the cash rate at 4.1 per cent during the October monetary policy meeting was widely expected among the market and economists, however, the outlook for the November board meeting appears to be less certain in the lead-up to the release of the Q3 inflation report.
Following the October decision, RBA governor Michele Bullock stated that recent data was “consistent with inflation returning to the 2–3 per cent target range”, however, flagged “significant uncertainties” around economic outlook, particularly regarding services price inflation, lags in monetary policy and household consumption.
Bendigo Bank head of economic and markets research David Robertson said that another hike to 4.35 per cent “as early as Melbourne Cup Day” remains the non-major bank’s expectation, along with its forecast that rate cuts will most likely “be a 2025 story”.
“The next inflation data of note in Australia will be the third quarter numbers out on 25 October and these are likely to continue to show falling costs for goods, but not for services,” Mr Roberston said.
“Services inflation continues to be stubbornly high around the globe, and here tight labour markets (together with abysmal productivity) is a major factor.”
Similarly, Bank of Queensland (BOQ) chief economist Peter Munckton stated in the bank’s economic update on 9 October that a scenario for another rate hike come November or December “is not unreasonable and can’t be ruled out”.
“I have been of the view that the most likely timing of another move would either be in November (following the Q3 CPI release) or in December (after the Q3 wages data),” Mr Munckton said.
“The thinking is that those pieces of data would indicate that inflation pressures were still uncomfortably high.
“I am not alone in this view. Virtually all financial market economists who have pencilled in another rate hike expect the move to come in either November or December.”
AMP Bank chief economist Shane Oliver said the non-major bank has allowed “a 40 per cent chance of another hike with the November meeting (after quarterly CPI data and revised RBA forecasts) and the December meeting (after quarterly wages data) being the ones to watch”.
However, Mr Oliver noted that should the economy continue to weaken as the previous rate hikes pass through the economy, downwards pressure on inflation will be maintained, disallowing any further hikes, and allowing the central bank to begin cutting rates around June 2024.
ANZ economists Madeline Dunk and Adelaide Timbrell said for the RBA to lift rates in November, they would need to see “an uncomfortably strong core Consumer Price Index (CPI) result for 3Q, as well as a stronger than expected labour market report”.
However, ANZ’s economists reiterated that they continue to expect that rates will need to stay at 4.1 per cent until late next year.
Westpac chief economist Bill Evans confirmed the major bank had recently adjusted its 2023 forecast for annual trimmed mean inflation from 3.8 per cent to 4.1 per cent.
“On the basis of our revised inflation forecast we expect the September Inflation Report will provide grounds for the staff inflation forecasts for the end of 2023 to be revised a little higher but not threaten the key goal of reaching the inflation target by 2025,” Mr Evans said.
“We do not see such revisions to the inflation outlook as providing sufficient evidence for a rate hike at the November meeting.”
Commonwealth Bank of Australia (CBA) chief economist Stephen Halmarick confirmed the major bank still retains its base case that the RBA rate hike cycle has ended and, while near-term risk remains to the upside, CBA still expects rate cuts to begin from May 2024.
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