MNI INSIGHT: RBA Likely To Stick With Rate Path After CPI Surge

Australian inflation data moved into the Reserve Bank of Australia's target range, but MNI understands that this is unlikely to change the central bank's view on the timing of any interest rate hike two years down the line.

Australia's Consumer Price Index for the third quarter increased by 0.8% for an annualized 3.0%, while the RBA's key measure – the trimmed mean – increased by 2.1%. This is against the RBA's mandated inflation target of between 2% and 3%.

The central bank has consistently been out of step with market views on inflation and has said that it wants to see inflation consistently and sustainably within its target range, along with evidence of wages growth, before it will raise rates, see: MNI STATE OF PLAY: RBA Looks To 2022 For Next Policy Moves.

MNI understands that the price numbers on Wednesday are unlikely to change the RBA view that the conditions for any rate rise are unlikely to be met until 2024. The RBA overnight cash rate has been at a record low of 0.10% since November 2020.

MOMENTUM ON THE UPSIDE

There are sustained inflation pressures in Australia from rising house prices and an expected sharp economic rebound as lockdown conditions end in the key cities of Sydney and Melbourne. But wages growth and employment fell in September along with the participation rate and slower growth in top export destination China remains a concern.

However, fresh momentum in the vaccination program and a change of policy away from 'COVID zero' to one of living with COVID is also expected to boost recovery into the southern hemisphere summer that could give the economy a boost in time for Christmas and set it up for growth next year.

But at this stage at least, the RBA is unlikely to have seen enough evidence for a change in the interest rate outlook.

More likely, MNI understands, would be a decision to end the bond buying program which is currently set to continue at the rate of AUD4 billion per week until mid-February, at which point the central bank would have purchased around AUD250 billion in government bonds.