Goldman Sachs Expect November Hike To Follow On Hold Outcome Today

The US bank expects an on hold outcome today, but sees the data as justifying another hike, with November the likely window, see below for more detail.

Goldman Sachs: "On balance, the firm macro data justify another hike in our view, however we expect the RBA to remain on hold at 4.1% at October's meeting given the Board will likely want to wait for the better-quality quarterly CPI data (due 25 October) and updated staff forecasts in November's Statement on Monetary Policy. We assign a 25% probability of a hike in October.

October will also mark the first meeting under Governor Michele Bullock, who was previously Deputy Governor (a role now vacant). Our base case is that Governor Bullock largely reiterates the language used in the post-meeting statement last month - including the forward guidance that further hikes are possible - but there is a possibility that the language undergoes significant revisions to mark a new 'era' at the RBA.

More broadly, we stress a high degree of uncertainty about the RBA’s reaction function over the coming months. Under Governor Bullock's predecessor, recent RBA decisions showed a surprisingly dovish bias and preparedness to tolerate a materially larger and longer inflation overshoot than global peers. So far, however, Governor Bullock is yet to provide much detail on her current thinking on monetary policy, and major changes to the structure of the RBA Board are yet to be implemented - so for now the reaction function remains unclear.

Looking further ahead, we expect the RBA to hike +25bps to 4.35% in November and then keep rates on hold before starting a gradual easing cycle in November 2024. We see risks skewed to additional hikes in December 2023 or early 2024."