The Reserve Bank of Australia (RBA) has actioned its thirteenth hike to the official cash rate since commencing its tightening cycle in May 2022, lifting the official cash rate by 25bps to 4.35 per cent.
The November decision follows four consecutive hold verdicts in July, August, September, and October.
Markets anticipated the November hike, with all four of the big four banks projecting a 25bps increase following an upside surprise to the September quarter consumer price index (CPI).
Both headline and trimmed mean inflation increased 1.2 per cent over the period, exceeding consensus expectations of 1.1 per cent (headline) and 1 per cent (trimmed mean).
The trimmed mean result was 0.3 percentage points above the RBA’s forecast of 0.9 per cent.
In annual terms, trimmed mean inflation eased to just 5.2 per cent (20 bps above market consensus) and headline inflation eased to 5.4 per cent (10 bps above market consensus).
The September quarter CPI data followed a shift in the Reserve Bank’s rate rhetoric, with the central bank’s last statement on monetary policy referencing a “low tolerance” for evidence of slower progress to the 2–3 per cent inflation target.
RBA governor Michele Bullock also stressed the central bank “will not hesitate” to lift the cash rate higher in response to a “material rise” to its inflation forecasts for a return to the target range by the end of 2025.
The November call also comes less than a week after the International Monetary Fund (IMF) suggested further policy firming from the RBA to accelerate disinflation.
“Although inflation is gradually declining, it remains significantly above the RBA’s target and output remains above potential,” the IMF said.
“Staff therefore recommend further monetary policy tightening to ensure that inflation comes back to the target range by 2025 and minimise the risk of de-anchoring inflation expectations.”
According to Luci Ellis, Westpac’s group chief economist and former assistant governor at the RBA, the September quarter CPI result confirmed fears of an inflation setback, particularly amid evidence of continued household resilience and demand pressures from rapid population growth.
“In our view, the Q3 CPI report highlighted that the pace of disinflation was not as fast as the RBA were hoping for, and the risk of a longer return to target – relative to the RBA’s current forecasts – is therefore material,” she said.
