Economists remain divided on whether Australia’s central bank will raise its key rate again this year, even as cooling inflation suggests less pressure on the Reserve Bank to tighten further.
(Bloomberg) — Economists remain divided on whether Australia’s central bank will raise its key rate again this year, even as cooling inflation suggests less pressure on the Reserve Bank to tighten further.
Eighteen predict the RBA will increase borrowing costs again — ranging from as much as half a percentage point to as little as 15 basis points — while 17 see the cash rate unchanged at 4.1% for the rest of the year, according to the latest Bloomberg survey.
Minutes of this month’s policy meeting showed the RBA had considered raising rates further before deciding there was a stronger case to pause. The central bank hiked by 4 percentage points between May 2022 and June 2023 and stood pat at its past three meetings, while keeping the door ajar to further tightening.
“That approach leaves the board with options in the event of some unexpected and sustained lift in inflation, certainly putting the third-quarter CPI report right to the fore,” said Bill Evans, chief economist at Westpac Banking Corp., referring to data set for release on Oct. 25. Still, he said, “the ‘hurdle’ for an inflation induced rate hike at the November meeting is quite high.”
Australia’s monthly price readings, which don’t have the same scope as quarterly data, show inflation has steadily slowed, coming in at 4.9% in July from a peak of 8.4% in December 2022. Given the wider reach of the quarterly figures, next month’s report is likely to be key, with the RBA also updating its own forecasts for the November policy meeting.
The Bloomberg survey showed economists cut their headline inflation forecasts for this quarter and next: to 5.1% from 5.2% and 4.1% from 4.2%, respectively. Price gains in the three months to September may have been spurred by surging oil prices already showing in retail pumps.
“The recent rise in petrol prices — an important input for households’ inflation expectations — highlighted that the process of returning inflation to target could be uneven,” the RBA minutes released Tuesday
The risk of price pressures returning is why the monetary board isn’t ruling out further tightening. Data last week showed US inflation rose in August by the most in over a year.
The RBA only expects inflation in Australia will fall back within its 2-3% target in late 2025.
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