Will the RBA confirm the rate hike expectations? – Preview
November 2, 2023 3:28 pm
RBA could announce a 25bps rate hike at its November meeting
Hawkish bias could be maintained if quarterly forecasts revised higher
Aussie/dollar’s current upleg could pick up speed after RBA meeting
The meeting statement will be released on Tuesday at 03:30 GMT
RBA ready for action
The Reserve Bank of Australiais preparing for its 10th rate-setting meeting for 2023. It is shaping up to be the most interesting one in the current round of central bank meetings, as the RBA is widely expected to deliver a 25bps rate hike on Tuesday, raising its main cash rate to 4.35%.
The RBA was among the first central banks to pause in the current tightening cycle but, after three unchanged meetings, Governor Bullock et al look ready to hike again. To be fair, the RBA has been quite clear about its readiness to raise interest rates again and the minutes from the previous October 3 meeting supported this case. There was apparently a good discussion around another 25bps rate move at the last meeting but in the end most members agreed to wait for the early November gathering when new information on inflation and jobs would be available.
Quarterly inflation surprised on the upside
In this context, the incoming information since then has been on the stronger side. The inflation rate for the third quarter of 2023 came in at 5.4% YoY, slightly higher than anticipated, and the producer price index continues to show decent annual increases. Additionally, the comment that the “Board had low tolerance for a slower return of inflation to target”, which appeared in the last minutes, has also caught analysts’ attention, fueling the current rate hike expectations.
Interestingly, most investment houses are expecting a rate hike on Tuesday. However, the same cannot be said for the market as it is assigning a meagre 56% probability for a November rate hike with the full 25bps rate move currently priced in by February 2024. It is quite rare for the market not to be fully onboard when analysts show a united front.
Quarterly RBA forecasts on Friday
Additionally, there is a strong possibility that the RBA could maintain its hawkish stance, even after announcing a rate hike. However, the degree of hawkishness will most likely depend on its quarterly forecasts. The last Statement on Monetary Policy published in August had 2025 inflation dropping to 2.8%.
While this is in line with the 2-3% inflation corridor targeted by the RBA, recent geopolitical developments and the decent consumer appetite could lead to an upwards revision in projected inflation. Should this be the case at Friday’s publication, the RBA could select to keep the door open for further rate hikes if needed going forward.
Aussie to benefit from a rate hike and a hawkish statement
The aussie has been under considerable pressure against the US dollar since the start of 2023. It recently traded at its lowest level for more than a year before the aussie bulls decided to stage a small upleg. The current move has stopped at the 0.6458 level but the combination of a 25bps rate and a hawkish statement could propel aussie/dollar towards the 0.6512-0.6561 area.
On the flip side, an RBA decision to postpone the rate hike for December could result in a stronger market reaction, with the aussie/dollar pair potentially dropping aggressively towards the November 3, 2022 low at 0.6271.
RBA could announce a 25bps rate hike at its November meeting
Hawkish bias could be maintained if quarterly forecasts revised higher
Aussie/dollar’s current upleg could pick up speed after RBA meeting
The meeting statement will be released on Tuesday at 03:30 GMT
RBA ready for action
The Reserve Bank of Australia is preparing for its 10th rate-setting meeting for 2023. It is shaping up to be the most interesting one in the current round of central bank meetings, as the RBA is widely expected to deliver a 25bps rate hike on Tuesday, raising its main cash rate to 4.35%.
The RBA was among the first central banks to pause in the current tightening cycle but, after three unchanged meetings, Governor Bullock et al look ready to hike again. To be fair, the RBA has been quite clear about its readiness to raise interest rates again and the minutes from the previous October 3 meeting supported this case. There was apparently a good discussion around another 25bps rate move at the last meeting but in the end most members agreed to wait for the early November gathering when new information on inflation and jobs would be available.
Quarterly inflation surprised on the upside
In this context, the incoming information since then has been on the stronger side. The inflation rate for the third quarter of 2023 came in at 5.4% YoY, slightly higher than anticipated, and the producer price index continues to show decent annual increases. Additionally, the comment that the “Board had low tolerance for a slower return of inflation to target”, which appeared in the last minutes, has also caught analysts’ attention, fueling the current rate hike expectations.
Interestingly, most investment houses are expecting a rate hike on Tuesday. However, the same cannot be said for the market as it is assigning a meagre 56% probability for a November rate hike with the full 25bps rate move currently priced in by February 2024. It is quite rare for the market not to be fully onboard when analysts show a united front.
Quarterly RBA forecasts on Friday
Additionally, there is a strong possibility that the RBA could maintain its hawkish stance, even after announcing a rate hike. However, the degree of hawkishness will most likely depend on its quarterly forecasts. The last Statement on Monetary Policy published in August had 2025 inflation dropping to 2.8%.
While this is in line with the 2-3% inflation corridor targeted by the RBA, recent geopolitical developments and the decent consumer appetite could lead to an upwards revision in projected inflation. Should this be the case at Friday’s publication, the RBA could select to keep the door open for further rate hikes if needed going forward.
Aussie to benefit from a rate hike and a hawkish statement
The aussie has been under considerable pressure against the US dollar since the start of 2023. It recently traded at its lowest level for more than a year before the aussie bulls decided to stage a small upleg. The current move has stopped at the 0.6458 level but the combination of a 25bps rate and a hawkish statement could propel aussie/dollar towards the 0.6512-0.6561 area.
On the flip side, an RBA decision to postpone the rate hike for December could result in a stronger market reaction, with the aussie/dollar pair potentially dropping aggressively towards the November 3, 2022 low at 0.6271.
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