The RBA Board is set to deliberate between a 25 and 50bps rate hike at today's meeting (decision due at 2:30PM AEDT). There have been clear signals from the RBA that a downshift in the pace of rate hikes is nearing, but another 50bps hike looks more likely than not today, taking the cash rate target to 2.85% and the Exchange Settlement rate to 2.75%.
At the September meeting, the Board delivered its 5th rate hike in succession, the past 4 hikes coming at a clip of 50bps after the initial 25bps increase in May. It is an open question how long the RBA will keep hiking rates at this accelerated pace. The September meeting minutes revealed the Board discussed whether to hike by 25 or 50bps, indicating it is starting to take a more balanced view of the situation. On the one hand, the Board is weighing up the risk of overtightening given the amount and pace of hikes already delivered and the lags associated with their transmission into the economy, while on the other still acknowledging there is work to do to ensure the return of inflation to the 2-3% target band.
Ahead of today's meeting, Governor Philip Lowe said at the RBA's recent parliamentary testimony that the Board was likely to again discuss the arguments for a 25 and 50bps rate hike in October. At the hearing, Governor Lowe appeared to give just enough insights to suggest a 50bps hike is more likely. The key observation being that the "inflation psychology" to the acceptance of price rises was showing signs of adjusting and given the strength of the labour market, this could put upward pressure on wage-setting processes that would risk inflation becoming more sticky.
Overall, with the cash rate still below the range the Board considers to be normal (2½ to 3½ percent), it looks likely to continue with its frontloaded approach to tightening by hiking rates by 50bps. Other key points to watch out for in today's statement are comments on the deteriorating global economic outlook and the risks it poses for the Australian economy, and the Board's latest assessment of developments in household spending.