The RBA Board is likely to hike its key rates by 50bps for the fourth meeting in succession today, taking another step towards normalising policy settings. Governor Philip Lowe's decision statement (due 2:30PM AEST) should confirm a rise in the cash rate target to 2.35% and to 2.25% for the Exchange Settlement rate.
It has been a quiet inter-meeting period in terms of public appearances by RBA officials with just one speech taking place since the August 2 meeting. That was delivered by the Head of Domestic Markets Jonathan Kearns on the risks posed to the financial system from climate change. Therefore, going into today's meeting, markets have been left to reflect on the central message from the August meeting: that further rate hikes are needed to rebalance supply and demand in the economy and put downward pressure on inflation. Recall that last month, the Bank updated its economic projections, lifting its forecast for peak inflation to 7¾% in Q4.
In his most recent speech in late July, Governor Lowe said the Board was using the neutral rate framework as a guidepost for setting policy. Most approaches studied by the RBA suggest the current setting of the cash rate at 1.85% is still some way below estimates of the neutral rate, indicating policy is still boosting growth and inflation. In that context, another 50bps hike looks assured today, consistent with the messaging around "normalising" policy.
The market will be focused on prospects for October and beyond, with a dialing down in the pace of hikes to 25bps increments seen as coming under consideration from next month. In his decision statement in August, Governor Lowe noted rates were "not on a pre-set path" and also that the Board would look to keep the economy "on an even keel" as it continues to tighten policy. That strikes a more balanced message than recent commentary by officials from the Fed and ECB that has clearly indicated a willingness to keep hiking rates to lower inflation despite risking weaker economic growth.
In addition to today's meeting, Governor Lowe is scheduled to deliver a speech on Thursday titled Inflation and the Monetary Policy Framework (1:05PM AEST).
