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The Reserve Bank of Australia pushed out its forecast for returning inflation to the 2-3% target to late 2025 and lowered its peak unemployment call 25bp to 4.25% today, moves some former RBA staff say signifies a more dovish stance, as it further raised rates but dropped a statement that further tightening may be necessary.
The Reserve board increased the cash rate 25bp to 4.35%, snapping its four-month pause and pushing it to its highest level since November 2011. Australian commonwealth government bonds ticked higher following the announcement, while the overnight index swaps market trimmed the chance of a December and Q1 hike. (See chart)
DOVISH SHIFT
While the move higher was largely anticipated thanks to a material change in September's quarterly and monthly inflation prints, ex staffers tell MNI the revision to the Reserve’s central forecast to return inflation to the top end of the target out to December 2025, and a 25bp increase to the end of 2024 estimate to 3.5%, means the board will stomach higher inflation for longer, making further rate hikes less likely.
The Reserve had initially anticipated in its August Statement on Monetary Policy that inflation would return to the top end of its target by June 2025 and 2.75% by the end of 2025. The RBA would need a more aggressive policy stance to maintain its August forecast, one former staffer told MNI.
Governor Michele Bullock also noted in her statement following the decision that further tightening would relay on data and the evolution of risks, dropping the usual line that "some further tightening may be required.”
FORECASTS AHEAD
The RBA will further detail changes to its peak unemployment, inflation outlook and other central forecasts when it publishes its updated November Statement on Monetary Policy on Friday. Leading up to Tuesday’s meeting, MNI reported the board’s decision would likely hinge on updated forecasts, while recent quarterly and CPI results had effectively “baked in” a November increase. Bullock also maintained a more hawkish tone in her communications leading into Tuesday’s hike, which lead some to believe she had paved the way for higher rates. (See MNI INTERVIEW:Neutral Update Needed After Fourth Pause- Ex RBA)
Bullock will likely reveal more on the RBA’s decision when she speaks at an industry conference in Melbourne on Nov 21.
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.