Australia set for hawkish hold as global price pressures abate

A pedestrian walks past the Reserve Bank of Australia (RBA) headquarters in the central business district of Sydney, Australia. - David Gray/Bloomberg

SYDNEY: The Reserve Bank of Australia (RBA) is set to resume a pause in interest rate increases as the latest data points to slower home-price growth and inflation suggests previous tightening moves are gaining traction.

The central bank will keep its cash rate at a 12-year high of 4.35% today, most economists predicted, after delivering a protective hike last month to ensure inflation remained on track to return to target.

The RBA has stood pat at all other meetings in the second half of this year.

RBA governor Michele Bullock, who has adopted a hawkish tone since taking over in mid-September, is likely to maintain the stance.

She has warned that while inflation eased to the current level of about 5% quite quickly, the next leg to the 2% to 3% target is likely to be more drawn out.

“The board does not want to tighten policy further,” but will if it needs to, said Gareth Aird at the Commonwealth Bank of Australia.

“For that to happen, there must be a clear signal in the domestic economic data that the policy rate is not sufficiently restrictive to bring inflation back to target.”

Australian policymakers have been more cautious than their offshore peers, trailing cumulative tightening in the United States and New Zealand by more than one percentage point.

As a result, the RBA is still fine-tuning its position whereas the US Federal Reserve (Fed), which went harder earlier, has seen inflation fall faster.

Underlining that markets are pricing cuts from the Fed next year, whereas there remain bets on tightening by the RBA.

Swaps traders wager there’s a 40% chance Australia will hike its key rate again by mid-next year, a contrast to the Fed and European Central Bank that are expected to have begun an easing cycle by then. — Bloomberg

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