The RBA is widely expected to hike the cash rate by 25bps to 4.85% today (decision due at 1430). Hawkish RBA commentary and Q3's inflation report have combined to lift market pricing for a hike at this meeting to around an 80% chance, up from around 50% after the September meeting. Although the RBA has already hiked rates four times this year - a far more aggressive stance than the likes of the Fed and ECB - it is not yet ready to throw in the towel on its tightening cycle. The effects of the Gulf conflict and a robust domestic economy will see the RBA revise its inflation outlook up today, threatening a more prolonged return of inflation to the middle of the 2-3% target band, currently not forecast until early 2028.
At the September meeting, the Monetary Policy Board returned a unanimous vote (9-0) to raise the cash rate by 25bps to 4.6%. The meeting minutes showed there was rising concern that elevated inflation could persist, with the conflict in the Gulf continuing to put upward pressure on energy prices and with robust demand testing the supply capacity of the domestic economy. In Q3, headline CPI was running at 3.9% year-on-year while the underlying or trimmed mean rate was 3.7% year-on-year (quarterly series). Those outcomes exceeded the RBA's year-end forecasts for 3.6% and 3.3% respectively, suggesting that its concerns over the inflation outlook may be materialising.
While the labour market has shown some signs of faltering - the unemployment rate averaged 4.6% in Q3, a little higher than the trajectory forecast by the RBA - conditions are still broadly viewed as tight. However, it was formally noted in the meeting minutes that with inflation remaining elevated, the trade-off with the employment side of its mandate was worsening. This will be a key message for Governor Bullock to manage at today's press conference. As will the slowdown in the housing market amid another rate rise.
