MNI BRIEF: RBA Hikes 25bp, Signals More To Come In Early 2023

The Reserve Bank of Australia quashed hopes for a new year's pause in its tightening campaign, saying it "expects" to raise rates over the period ahead after hiking rates 25bp to 3.1% on Tuesday.

The language around guidance in the accompanying statement retained a similar tone to that over recent months, disappointing those who had hoped for a dovish tweak that may hint at a pause after a cumulative 300bp in tightening since May. The Cash Rate is at its highest level since 2012. (See MNI RBA Watch: Another 25bp Hike, Eyes On Guidance Tweaks)

"The Board expects to increase interest rates further over the period ahead, but it is not on a pre-set course," RBA Governor Philip Lowe said in the meeting statement. The Bank said the size and timing of future interest rate increases would be determined by incoming data.

The RBA sharpened its tone on the outlook for household spending. It was "expected to slow" over the period ahead, though the timing was uncertain. In the November statement, household spending was broadly mentioned as one of the uncertainties that policymakers were monitoring.

The uncertain outlook was reflected in a reference to a "range of potential scenarios" appended to the RBA's recent language about keeping the economy on an "even keel". The Australian dollar rallied against the U.S. dollar after the decision, climbing from 0.6715 to 0.6730.