RBA to hold rates at 4.10% in Oct, deliver one final hike by end-2023: Reuters poll By Reuters

By Anant Chandak

BENGALURU (Reuters) – Australia’s central bank will hold its key interest rate steady at 4.10% on Tuesday but hike it to a peak of 4.35% next quarter as inflation remains above target, a Reuters poll of economists found.

The inflation rate, which is nearly twice as high as the Reserve Bank of Australia’s (RBA) target of 2%-3% at 5.2% in August, suggests further monetary policy tightening may be required to get prices under control.

All but two of 32 economists in a Sept. 27-28 poll expected the RBA to hold its official cash rate at 4.10% on Oct. 3. Two forecast a 25 basis-point hike.

“One month’s higher inflation print especially driven by oil is unlikely to sway the RBA to hike. Indeed, trimmed inflation actually slowed…suggesting the Bank has more reason to be on hold,” said Shreya Sodhani, research analyst at Barclays.

“Opposing trends in terms of rising services inflation, easing goods inflation, softer growth and relatively easier but still tight labour markets will likely keep the RBA focused on data. While we do expect one more hike from the Bank, it is a close call with the risk being the hiking cycle is over.”

Sodhani expects the final hike to come in November, a week after a broader quarterly inflation data release due on Oct. 25. Most economists expect the RBA to wait for that and jobs data before making a decision.

A slim majority of economists, 17 of 30, predicted the RBA would raise rates to 4.35% or higher by the end of 2023. The remaining 13 forecast no change.

Among major local banks, ANZ, CBA, and Westpac said the RBA is done with its tightening cycle. Only NAB expected another 25 basis points hike in November.

The Australian dollar has weakened more than 6% this year, which is likely to fuel imported inflation and poses challenges for newly appointed RBA Governor Michele Bullock, whose first meeting is in October.

“We think if the RBA is going to hike again, it will need to be this year, as we don’t believe the current inflation backsliding will last beyond the year-end. That may also provide some additional lift to the AUD,” noted Robert Carnell, economist at ING.

Median forecasts showed rates holding steady at 4.35% until at least the end of March. A 25 basis-point rate cut was expected every quarter thereafter, taking them to 3.60% by the end of 2024.

“We expect inflation to continue coming down and to reach target by late 2024 and that will be enough for the RBA to cut rates,” said Ben Udy, lead economist at Oxford Economics Australia.