Rate hike reprieve likely for December

Predictions from the big bank economists and markets have foreseen interest rates to hold steady in December.

In the lead-up to the Reserve Bank of Australia’s (RBA) final monetary policy decision for 2023, the big four bank (NAB, CBA, Westpac, and ANZ) economists have all predicted that the central bank will pause the cash rate at 4.35 per cent in December.

The RBA increased the cash rate for the first time since the June monetary policy meeting in November by 0.25 bps, with the argument to raise the official cash rate being centred on the “risks arising from the outlook for inflation being stronger than it had been some months earlier”.

Following the Australian Bureau of Statistics (ABS) releasing its monthly Consumer Price Index (CPI) indicator on 29 November, which revealed that inflation had returned to the 4.9 per cent level recorded in July, CreditorWatch senior economist Anneke Thompson stated that the central bank’s monetary policy was “taming the inflation beast”.

Ms Thompson further stated that the RBA will “most certainly” hold the cash rate steady at the December meeting based on the October CPI data, weak consumer spending, and rising unemployment.

Additionally, ANZ senior economist Catherine Birch said that the major bank continues to see the RBA hold in December in light of the CPI data.

Commonwealth Bank of Australia (CBA) head of Australian economist Gareth Aird stated the major bank sees “very little chance of the RBA raising the cash rate or shifting their forward guidance”.

“The RBA board is data dependent,” he said.

“And any further tightening will require the economic data, particularly on the prices side of the economy, to print stronger than the RBA is anticipating.

“Markets have ascribed a 3 per cent chance that the RBA lifts the cash rate in December. That looks a pretty fair assessment of the balance of probabilities next week.”

Westpac chief economist Luci Ellis said there hasn’t been enough new information to warrant the RBA delivering a second increase just yet after it revised its near-term inflation forecast in November and already delivered one of the “one to two” rate increases assumed.

“The monthly CPI indicator is volatile, but the October reading was a bit below expectations,” Ms Ellis said.

“The RBA is still ready to raise rates further if it sees further upside surprises on inflation.

“It has no tolerance for more delays in the return to the inflation target. So, February is still live, but we don’t see them moving in December.”

Ms Ellis added that the major bank affirms the view that the RBA would raise the cash rate at the February meeting if it “sees further upside surprises to inflation or fresh evidence suggesting that inflation will decline more slowly than it intends”.

“If things play out broadly in line with their forecasts, though, further moves would be harder to justify. In that case, it would be likely that the RBA would hold the cash rate steady. Currently we believe this is the more likely outcome,” she added.

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