Commonwealth Bank of Australia sees a “non-trivial risk” that the Reserve Bank could raise interest rates by 40 basis-points at its first policy meeting of the year on Tuesday following an acceleration in inflation.
(Bloomberg) — Commonwealth Bank of Australia sees a “non-trivial risk” that the Reserve Bank could raise interest rates by 40 basis-points at its first policy meeting of the year on Tuesday following an acceleration in inflation.
While the RBA increasing rates by a quarter percentage-point is the most likely outcome, “a larger hike coupled with a stated intention to pause could be on the table,” Gareth Aird, head of Australia Economics at CBA, said Thursday.
Figures last week showed trimmed mean inflation, a gauge closely tracked by the RBA, surged to 6.9% in the final three months of 2022. That exceeded the central bank’s forecast 6.5% and was stronger than US and UK core prices.
The RBA was the first developed-world bank to downshift to smaller rate hikes in October and at its December meeting considered pausing its tightening cycle. Since then, while household spending and hiring have showed signs of slowing, the jump in inflation has overshadowed that.
A 40 basis-point hike to 3.5% would return the cash rate to a traditional rounding, after borrowing costs were cut to a record 0.1% during the pandemic.
Aird argued that such an outsized hike wouldn’t “strictly” increase the pace of tightening given the rate-setting board doesn’t meet in January. Still, financial markets and most economists, including Aird himself, expect the RBA to raise by a quarter-point.
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