Free Trial

Further Rate Hikes Ahead, Expect 25bp As Consistency Important To RBA

RBA

The RBA meeting minutes contained the same key points that were in the statement and speeches by Governor Lowe and Deputy Governor Bullock since November 1. It does give some colour as to the discussion ahead of the 25bp move. Again the RBA states that it expects to increase rates further to balance supply and demand and to return inflation to target but that it is on a narrow, uncertain path.

  • Again the Board discussed whether to hike rates 25bp or 50bp and found that there were arguments for both. It decided on 25bp due to the significant amount of tightening that had occurred since May and that not all of that had filtered through to the economy yet.
    • It was also concerned about maintaining consistency after the 25bp hike in October and thus confidence in the community and financial markets.
    • Other reasons included the impact on household budgets and the housing market, wages consistent with the target, easing global supply chain issues, some commodity prices falling and slower global growth outlook.
  • Current elevated inflation, upside risks to inflation from the tight labour market, rents and energy, and a possible shift in price- and wage-setting behaviour drove the arguments for 50bp. The minutes also noted that rates were still historically low.
  • The RBA remains prepared to accelerate tightening if need be or even pause - “members did not rule out returning to larger increases if the situation warranted. Conversely, the Board is prepared to keep rates unchanged for a period while it assesses the state of the economy and the inflation outlook. Interest rates are not on a pre-set path.”
  • See minutes here.

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.