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The Reserve Bank of Australia has moved in line with expectations, raising the nation’s cash rate interest by 0.25bps to 4.35 per cent.
Analysts had been widely tipping an interest rate hike following Australia’s latest inflation data, which surprised to the upside.
Borne from that release we got a more hawkish RBA. Shelter and energy remain key drivers that are keeping consumer prices high.
Global interest disharmony
The move to raise steps out of balance with global central banks in major western countries.
In the last two weeks, the US Fed and Bank of England (BoE) have both held interest rates steady.
The RBA has been firmly on pause since mid-year, keeping rates steady even as the BoE’s increased.
Inflation seen as too hot
In September, inflation was already high at 5.2 per cent.
Energy costs ran particularly hard in that read of August’s data.
Then the September data we got last month was even worse, climbing 0.2 per cent higher.
Meeting target in less time
“Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago,” RBA Governor Michele Bullock wrote on Tuesday.
“The Board judged an increase in interest rates was warranted today to be more assured that inflation would return to target in a reasonable timeframe.”
“Inflation data left no other choice for the RBA today other than to hike,” City Index Senior Market Analyst Matt Simpson observed.
But Bullock’s statement contained a hidden nugget buried further down.
Toned down unemployment forecast
The RBA expects a rise in unemployment to be less significant than first thought.
“Given that the economy is forecast to grow below trend, employment is expected to grow slower than the labour force and the unemployment rate is expected to rise gradually to around 4ΒΌ per cent,” Bullock added.
“This is a more moderate increase than previously forecast.”
Commodity relief not enough
While falling Brent Crude prices gave the latest inflation data relief on energy, shelter remains the biggest upward pressure.
This is true for the monthly read, and, the YTD inflation picture.
It led CommSec to hint at the RBA hike in November without actually saying it, noting inflation remains a problem for growth in all states.
Analyst consensus
Yesterday, The Market Herald highlighted that five analysts from a range of organisations were forecasting a rate hike on Tuesday.
All four major banks were tipping a rise by Tuesday morning.
Oxford Economics, Morgan Stanley and City Index joined the chorus of analysts tipping a hike.
A Reuters poll of 40 economists saw the vast majority tip a hike.
