The RBA hiked the cash rate by 25bps to 4.6% in a unanimous decision (9-0) by the Monetary Policy Board today. Governor Bullock maintained a hawkish tone at the post-meeting press conference saying that with upside risks to the inflation outlook materialising it was prepared to raise rates further. Market pricing was little changed, giving a roughly 50/50 chance to one more hike by December, with the cash rate still seen peaking around 5% by mid next year.
Following today's hike, the RBA has now delivered 100bps of tightening through this cycle, and the message was that it may not be done yet. The cash rate was held at 4.35% at the past two meetings, but recent developments have forced the Board's hand to hike again. Renewed rises in fuel and energy prices with tensions in the Gulf failing to ease were a key factor behind today's decision, though it was not the only reason. Domestic growth and inflation have been stronger than the RBA was expecting, while the AI-related investment surge is also adding an inflationary impulse.
The decision statement noted these factors warranted 'a further tightening in financial conditions' to help bring inflation back to target, removing the reference to policy being judged as 'somewhat restrictive'. Governor Bullock said that policy was still seen as restrictive, citing the slowing housing market and estimates of the neutral rate as evidence of this, though it is a sign that this is a relatively low conviction view around the Board table.
Incoming data will be key for the rates path from here as uncertainty over the domestic economy and inflation continue be described as 'heightened'. The Board wants to see demand cooling to help ease capacity constraints and take pressure off inflation. But that will be complicated by geopolitics if the Gulf conflict keeps fuel prices elevated. The next RBA meeting is on 2-3 November.
