Economists are confident that Reserve Bank of Australia Governor Philip Lowe will change his interest rate guidance following this week’s monthly board meeting following the unexpected jump in inflation.
For several months, the RBA has repeatedly said it will not raise cash rates until inflation is sustainable within its two to three percent target, which it has not expected to occur before 2024..
Last week, annual underlying inflation – which offsets large price fluctuations and is linked to interest rate decisions made by the RBA – unexpectedly jumped to 2.1 per cent.
It was the strongest result in six years and took it within the central bank’s target band.
The day after the inflation figures were released, RBA Deputy Governor Guy Debelle said in a speech to senators: “A little bit more inflation is welcome.”
But he declined to say what that meant for the outlook ahead of the board meeting on Tuesday and the central bank’s quarterly monetary policy statement on Friday.
“We expect the RBA to set out its guidelines for the first rate hike by 2023,” said AMP Capital Shane Oliver, though he expects the first rate hike to be at the end of 2022.
He also expects the central bank to further withdraw or downsize its bond buyback regime to $ 2 billion from $ 4 billion from February next year.
“But the money market’s expectations that the RBA will start rising mid-next year and about four rate hikes by the end of next year, which take the cash rate to 1-1.25 percent, look very much above the top,” said Dr. Oliver.
Markets speculated about the prospect of early rate hikes even before last week’s inflation figures, faced with rising global oil prices and supply disruptions caused by the COVID-19 pandemic.
The first week of a new month will also bring the usual downpour of economic numbers starting on Monday with house prices and home loans.
Westpac economists expect the CoreLogic home value index to rise 1.4 percent in October after 1.5 percent in September, a further gradual step down from the two percent-plus rates seen earlier in the year.
More generally, economists’ forecasts for home loans, as estimated by the Australian Bureau of Statistics, point to a 1.5 per cent increase for September.
Also released on Monday is the ANZ job ad series for October, a benchmark for future employment.
ABS will issue building approvals in September on Wednesday, while on Thursday it will release international trade for the same month and retail spending for the September quarter.
Meanwhile, Australian equities look for a positive start to the month, supported by gains on Wall Street at the close on Friday, after shaking off early declines.
The Dow Jones Industrial Average rose 89.08 points or 0.25 percent to 35,819.56, the S&P 500 rose 8.96 points or 0.19 percent to 4605.38 and the Nasdaq Composite added 50.27 points to 3.0 percent, or 3.0 percent.
For the month, the S&P 500 rose 6.9 percent, the largest monthly increase since November 2020.
Australian stock futures followed the positive US tone, rising 68 points, or 0.93 percent, to 7,348.
On Friday, the Australian benchmark S & P / ASX200 index closed lower at 106.7 points or 1.44 percent to 7,323.7.
Australian Associated Press