Anticipated Interest Rate Hike by the RBA in Upcoming Decision

⚡️ Highlights:

1. The RBA is predicted to increase the cash rate by 25 basis points to 4.35% at the November Board meeting, with an 80% chance of a rate increase and a 20% chance of no change.

2. The RBA is expected to revise their end-2023 and end-2024 inflation forecasts upward, while maintaining their central scenario that inflation will return to the target band in late 2025.

3. The unemployment rate forecast for end-2023 may be slightly lowered, but no major changes are expected in the RBA’s forecast profile for the jobless rate.

4. The RBA’s forecasts for wage growth are unlikely to be changed.

5. GDP forecasts for end-2023 may be revised upward based on updated data from the ABS, and GDP growth for end-2024 may also be nudged higher due to a slower retracement of population growth to pre-pandemic levels.

In a recent analysis by Gareth Aird, head of Australian economics at the Commonwealth Bank of Australia (CBA), it is maintained that the Reserve Bank of Australia (RBA) is likely to increase the cash rate by 25 basis points to 4.35% at the November board meeting. This forecast is bolstered by strong September retail trade data, assigning an 80% probability to the rate increase and a 20% chance of no change. This adjustment in expectations follows the third-quarter CPI, which presented an upward surprise in the trimmed mean relative to the RBA’s forecast.

Market Dynamics and Forecasts

The RBA is expected to revise its end-of-year and the following year’s inflation forecasts upwards, while maintaining the projection that inflation will return to the target band by late 2025. Employment rate forecasts may see minor adjustments, but significant changes are not anticipated. Wages growth forecasts are likely to remain unchanged, while GDP forecasts for the end of the year may be revised up due to adjustments from the Australian Bureau of Statistics (ABS).

Policy Implications and Economic Indicators

The upcoming week is pivotal for Australian financial markets, with the RBA’s board meeting set against the backdrop of a strong CPI in the third quarter and a labor force survey indicating the unemployment rate is near its cyclical low. The decision will be influenced by various factors, including the unemployment rate, retail trade data, and inflation forecasts. The RBA’s updated set of forecasts will be published in the November Statement on Monetary Policy, providing further context for the board’s decision.

The RBA is poised to continue its tightening cycle with a probable rate hike in the upcoming board meeting, reflecting the central bank’s response to inflationary pressures and economic conditions. The full analysis by Gareth Aird offers a detailed perspective on the factors influencing the RBA’s monetary policy decisions.

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