Stocksak poll: RBA to maintain modest rate hikes despite high inflation

© Stocksak. FILEPHOTO: A man walks by the Reserve Bank of Australia (RBA) building in central Sydney, July 7, 2009. REUTERS/Daniel Munoz

By Devayani Sathyan

BENGALURU, (Stocksak), The Reserve Bank of Australia will increase interest rate by a less modest 25 basis point for a second consecutive month on Tuesday. It will do so again in December despite high inflation in the past three decades, as a Stocksak poll revealed.

This puts the RBA, who launched its late-starting rate-hiking campaign in a series of four 50 bp moves with no breaks, out of tune with its global peers which are mostly still increasing rates in greater increments.

Nearly 90% of respondents (28 of 32) in the Stocksak poll on Oct. 24-27 predicted that the RBA would raise its benchmark cash rate 25 bps to 2.85% at the Nov. 1 meeting. The other four forecasted a 50-bp increase.

Markets and economists were surprised earlier this month by the 25 bp increase. They claimed that rates had already risen significantly. The RBA is under great pressure to reconsider after inflation soared to 7.3% in the last quarter.

Alan Oster, NAB’s group chief economist, stated that “in these circumstances, the RBA must move monetary policy into a more clearly restrictive territory in order to ensure inflation returns back to target.”

He stated that, while the board might debate the possibility for a 50 bp rise due to the strength in inflation, “we see a 25% hike as slightly more probable considering recent communications”.

Among the major local banks, ANZ and CBA expect a 25 bp increase on Tuesday. Westpac predicts a 50 bp increase.

In a research note, Bill Evans (Westpac’s chief economist) called the rise in inflation a “genuine” shock and said that if the central did not respond quickly, it could give the impression it is “less committed than fully to the inflation task”.

One reason to be cautious is the precarious state in Australia’s housing market. As rising mortgage rates and A$2 trillion ($1.3 trillion), home loan holders, there is a risk that the market will slow down.

More than 90% of poll respondents (30 of 32) predicted another 25-bp increase at the RBA’s December meeting. The median forecast showed rates ending the year at 3.1%, the highest rate since 2012.

Economists have raised their rates of hike expectations as inflation is unlikely to return to the RBA target range of 2-3% in the first quarter of 2024.

Just over half (16 of 31) now expect rates will reach 3.60% or more by June 2023, a quarter-point higher than the October poll.

Median forecasts show rates that remained unchanged up to September’s end.

13 out of 29 economists predicted that the cash rate would remain at 3.60%, or rise by 2023. Five forecast it to climb up to 3.85%. This is roughly in line market pricing.

Analysts think that the RBA may be forced to revert next week to 50 bps, as the U.S. Federal Reserve is widely believed to have voted for its fourth consecutive 75-bp rate increase on Nov. 2.

Robert Carnell (regional head of Asia-Pacific research at ING) stated, “It is hard for me to see how they can ignore such a large miss on inflation.” “This…puts pressure on the RBA for a return to a 50-bp tightening rate.”

($1 = 1.5552 Australian dollars)

(Reporting and polling done by Devayani Sathyan. Editing by Hari Kishan Ross Finley Kirsten Donovan.

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