MNI RBA Preview - October 2023: Extended Pause, Watch November

EXECUTIVE SUMMARY:

• The RBA is likely to leave rates at 4.1% again at its October 3 meeting, as the economy is developing broadly as the bank expects. Decisions are highly data and outlook dependent and while there have been some upside surprises there haven’t been any developments that would shift the Board from its on hold stance.
• The tightening bias will probably be retained to keep the central bank’s options open going forward and the accompanying statement may again be little changed.
• The RBA is expecting headline inflation of 4.1% and trimmed mean of 3.9% by year end, and the Q3 CPI data due on October 25 should indicate whether these forecasts may need to be revised in early November. There are upside risks from higher costs, elevated unit labour costs, rising house prices and sticky services inflation.
• The big question mark is over the November 7 meeting, which will include updated forecasts and the more detailed Q3 CPI data. If CPI forecasts are revised up then the risk of another hike rises substantially. On the other hand, an imminent rate cut is unlikely with the return to target at the edge of the RBA’s “foreseeable future”.

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RBA Preview - October 2023.pdf