On a Monday afternoon in early November 2023, Australian investors paused between daily market moves to look ahead to a single moment: the Reserve Bank's decision on Tuesday afternoon. It is a decision that carries the weight of a long climb, since the cash rate has risen from a historic low of 0.10% to 4.10% over the past eighteen months, and it will be the first major test for new governor Michele Bullock. The question is whether a patient bank, having already tightened so much, should add one more step while inflation still sits well above its target, or allow the economy a moment to breath
Economists Expect RBA Rate Hike as Governor Bullock Faces First Tightening Test
Four pauses, 5.4% inflation, and one very public first test
Mark
Why is Tuesday such a big deal if rates have only been on hold for a few meetings?
Mimi
Because it's Michele Bullock's first decision as governor where a hike is a live possibility. The cash rate has been 4.10% since June, and inflation at 5.4% is still well above the 2% to 3% target.
Mark
So economists are nearly unanimous?
Mimi
Nearly. In the AFR survey, 33 of 35 expected an increase, and all four big bank lead economists do too. The forecast is a 0.25% rise to 4.35%.
Luke
But markets only priced about a 50% chance as of Friday 3 November. That's a big gap between economists and traders, and the article doesn't explain it.
Mimi
Right, it just flags that the split exists and that it could weigh on the ASX 200.
Mark
Some think more hikes follow?
Mimi
Nine of the 35 expect two more, taking the rate to 4.6%. Schroders' Simon Doyle and Citigroup's Josh Williamson lean that way.
Luke
Worth noting those are forecasts and opinions, not decisions. Williamson even doubts a 50-basis-point hike would be delivered.
Mark
And the other side?
Mimi
Bloomberg Economics' James McIntyre expects a pause and calls it a difficult call.
Luke
The excerpt cuts off before his reasoning, so we don't know why he sees it that way.
Le Pouls
- Inflation at 5.4% still sits far above the RBA's 2% to 3% target, and the central bank is weighing whether to tighten once more.
- Markets price a hike at only 50% while nearly every economist expects one, leaving the ASX 200 braced for whiplash either way.
- Newly appointed governor Michele Bullock faces her first major rate call, with four months of holds behind the bank and no clear consensus on the next step.
- A pause could ignite a late-afternoon rally, but a hawkish camp of economists warns that two more hikes, lifting rates to 4.6%, may still be needed.
On a Monday afternoon in early November 2023, Australian investors paused between daily market moves to look ahead to a single moment: the Reserve Bank's decision on Tuesday afternoon. It is a decision that carries the weight of a long climb, since the cash rate has risen from a historic low of 0.10% to 4.10% over the past eighteen months, and it will be the first major test for new governor Michele Bullock. The question is whether a patient bank, having already tightened so much, should add one more step while inflation still sits well above its target, or allow the economy a moment to breathe. The answer, like most in economics, depends on which uncertainty one fears more.
On Monday afternoon the S&P/ASX 200 was edging higher, but investors' attention had already moved to Tuesday at 2:30pm AEDT, when the Reserve Bank of Australia would announce its latest interest rate decision. It would be the first such decision for newly appointed governor Michele Bullock, and the first in which she might raise rates.
The cash rate has sat at 4.10% since June, after climbing from a record low of 0.10% in May 2022, when the bank began lifting rates rapidly to fight soaring inflation. Inflation has cooled from its late-2022 peak, but at 5.4% it still far exceeds the 2% to 3% target, and that gap is why a pause is far from settled.
Most economists expect a quarter-point rise to 4.35%. The lead economists at all four major banks agree, and in an AFR poll 33 of 35 forecasters expected an increase. Markets, however, are far less certain, with the ASX's rate indicator putting the odds of a hike at only 50%, a split that could unsettle equities.
Some forecasters see Tuesday as only a waypoint. Simon Doyle of Schroders argued that bringing inflation back to 2% sustainably would require more work from central banks, while Citigroup's Josh Williamson suggested the board might even weigh a half-point move, though he doubted it would, given how much tightening has already happened. A minority, including Bloomberg Economics' James McIntyre, expects the bank to hold, calling it a difficult choice. Tuesday's announcement will reveal whether Bullock's first major decision is a hike or a hold.
On Monday afternoon the S&P/ASX 200 was holding a 0.3% gain in early trade, with investors looking past the day's moves to Tuesday at 2:30pm AEDT. That is when the Reserve Bank of Australia is due to announce its latest interest rate decision, and it will be the first one in which newly appointed governor Michele Bullock might raise rates.
The cash rate has sat at 4.10% since 7 June. It began its climb from a historic low of 0.10% in May 2022, when the RBA started raising rates rapidly to bring soaring inflation under control. The bank has now held steady for the past four meetings.
Inflation has fallen from its highs in late 2022, but the most recent reading of 5.4% is still well above the central bank's target range of 2% to 3%. That gap is the reason a pause is not a settled question.
Most economists think the RBA will move. The majority forecast a 0.25% increase, which would take the cash rate to 4.35%. The lead economists at all four of the big ASX-listed banks expect a hike. Surveys by Bloomberg and The Australian Financial Review point the same way: in the AFR poll, 33 of 35 economists expected Bullock to announce an increase on Tuesday.
Markets are far less sure. According to the ASX's RBA Rate Indicator, the probability of a rise on Tuesday stood at only 50% as of Friday 3 November. That split between market pricing and economist forecasts could put pressure on the ASX 200, since expectations for the RBA's next step remain mixed.
Nor do some forecasters see Tuesday as the end of the cycle. Nine of the 35 economists in the AFR survey expect two more increases, which would lift the cash rate to 4.6%. Simon Doyle, local CEO of fund manager Schroders, shares that hawkish view. He said it would be very difficult for inflation to return sustainably to 2% without more work from central banks, adding that another couple of hikes, or another 50 basis points, was easily possible.
Josh Williamson, Citigroup's chief economist for Australia, made a similar case to Bloomberg. He said the board could even discuss a 50-basis-point hike, though he doubted it would deliver one given how much tightening has already occurred and what he called the realpolitik. In his view, rates are not far enough above neutral to restrain domestic demand sufficiently while inflation is high, and one more 25-basis-point rise will not fix that.
A minority expect another pause. James McIntyre of Bloomberg Economics is among them, saying the RBA faces a difficult call. If the bank does hold fire, the article suggests it could spark a late-afternoon rally on the ASX 200. Tuesday's 2:30pm announcement will show whether Bullock's first major decision is a hike or a hold.
Citations marquantes
It's going to be very difficult for inflation to go back to 2% sustainably without more work from central banks.— Simon Doyle, local CEO of Schroders
The RBA faces a difficult call.— James McIntyre, Bloomberg Economics
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