RBA to deliver 25 bp interest rate hike on Nov. 7 – Reuters poll

By Devayani Sathyan

BENGALURU (Reuters) – Australia’s central bank will raise its key policy rate by 25 basis points to 4.35% on Tuesday after keeping borrowing costs steady at its last four meetings, as inflation proves surprisingly strong, a Reuters poll found.

Inflation was higher than expected last quarter, catching policymakers off guard and pushing financial markets to price in one more rate hike from the Reserve Bank of Australia.

While economists have been expecting one last rate hike this quarter since August, the latest Oct. 30-Nov. 2 Reuters poll is the first for several months where there is near unanimity among participants for an increase.

If realised, this will be the first hike from the RBA under the governorship of Michele Bullock who said the central bank would not hesitate to hike further if there is a material upward revision to the inflation outlook.

Nearly 90%, 34 of 39 economists in the poll said the RBA would raise its official cash rate 25 basis points to 4.35% on Nov. 7, a level not seen since November 2011.

Among the remaining five, one predicted a 15 basis points hike and four expected 4.10% to be the terminal rate.

“The expectation was the RBA would hike in November for some time and the reason was because the RBA’s forecast looked too optimistic on inflation through the second half of this year,” said Taylor Nugent, senior economist at NAB.

“The RBA was hopeful they wouldn’t need to do more, and they had been taking the approach they would try and do as little as possible while still seeing inflation back to target. And that did leave them more exposed to upside risk than if they had moved rates higher sooner.”

The expected hike from the RBA comes when most of its global peers, including the Reserve Bank of New Zealand, are in a wait-and-watch mode. [NZ/INT][ECILT/US][ECILT/GB][ECILT/EU]

All major local banks – ANZ, CBA, NAB, and Westpac – expect the RBA to hike rates by 25 basis points next week.

A strong majority of economists, 28 of 39, forecast rates at 4.35% by end-2023. Among the remaining 11, six predicted 4.60%, one 4.25% and four saw no move from 4.10%.

Median forecasts showed rates at 4.35% at least until end-June 2024, a quarter later than in October’s poll.

“At the moment the RBA appears like it will hike 25 basis points, but the risks are definitely skewed towards more action. If we do see a hike in November…it’s much more likely we’re going to see another hike rather than cuts anytime soon,” said Madeline Dunk, economist at ANZ.

“And that higher for longer theme is something running through markets globally because a lot of people have been surprised at the resilience of economies and also the stickiness in inflation.”

In addition, house prices in Australia have rebounded to near previous peaks, suggesting the RBA’s policy tightening of 400 basis points has had little impact on the red hot property market.

(Reporting by Devayani Sathyan; Polling by Susobhan Sarkar and Veronica Khongwir; Editing by Hari Kishan and Jonathan Cable, Kirsten Donovan)