After nearly two years of pandemic-era stimulus, Australia's Reserve Bank stands at a careful crossroads — prepared to end its bond-buying program on February 1st, yet reluctant to raise interest rates until the conditions of wages and political timing align. Inflation is rising faster than officials anticipated, and markets are already running ahead of the central bank's measured pace. The RBA's dilemma is one familiar to institutions navigating the long passage from crisis to normalcy: how quickly to withdraw the medicine without inducing a new kind of harm.
RBA to end QE in February, hold rate hikes until November amid inflation surge
Inflation hit its fastest pace since 2014, forcing a reckoning.
Mark
So the RBA is ending its bond-buying but holding rates steady until November. That seems like a contradiction—if inflation is surging, why wait?
Mimi
It's not really a contradiction. The bond-buying was emergency stimulus. Ending it is a first step. But raising rates is a bigger move, and they're being cautious about the timing.
Luke
But the source says inflation hit its fastest pace since 2014. That's not small. Why wouldn't that force an earlier move?
Mimi
Because the RBA—and most economists in the poll—still think some of this inflation is temporary. They're watching wages. If wage growth stays below 3%, they have less urgency.
Mark
What about the money markets pricing in a May hike? That's only three months away.
Mimi
Money markets are always ahead of central banks. They're betting on what could happen, not what the RBA has signaled it will do. The median forecast from economists is still November.
Luke
But the distribution matters, right? Two economists see a second-quarter hike, seven see third quarter, eleven see fourth quarter. That's not consensus.
Mark
And there's the election. The RBA won't move during an election month.
Mimi
Exactly. That's a real constraint. It might push the first hike to August or even later, depending on when the election is called.
Luke
So we're really saying: the bank will probably move in November, but it could be earlier if inflation stays hot, or later if the election or wage data gets in the way.
Mimi
That's fair. The February 1st announcement will tell us more about how seriously they're taking the inflation surge.
Der Puls
- Australia's underlying inflation hit its fastest pace since 2014, shattering the RBA's earlier assurances that a rate rise in 2022 was unlikely and forcing economists to revise their forecasts upward for the third consecutive month.
- Money markets are pricing in a rate hike as early as May — months ahead of the November consensus held by most polled economists — revealing a growing gap between market urgency and central bank caution.
- The RBA is expected to end its quantitative easing program on February 1st while holding its cash rate at a record low of 0.10%, threading a needle between acknowledging inflation and resisting premature tightening.
- A looming federal election and wage growth still below 3% are acting as political and economic brakes, potentially pushing the first rate rise to August or beyond despite mounting price pressures.
- If the November forecast holds, economists project the cash rate reaching 0.75% by mid-2023 — returning to pre-pandemic levels through a sequence of measured hikes across three quarters.
After nearly two years of pandemic-era stimulus, Australia's Reserve Bank stands at a careful crossroads — prepared to end its bond-buying program on February 1st, yet reluctant to raise interest rates until the conditions of wages and political timing align. Inflation is rising faster than officials anticipated, and markets are already running ahead of the central bank's measured pace. The RBA's dilemma is one familiar to institutions navigating the long passage from crisis to normalcy: how quickly to withdraw the medicine without inducing a new kind of harm.
Australia's Reserve Bank is preparing to close one chapter of its pandemic response while carefully avoiding a premature leap into the next. On February 1st, the RBA is expected to announce the end of its bond-buying program — a stimulus measure sustained for nearly two years — but will keep its cash rate at a record low of 0.10%. According to a Reuters poll of 34 economists conducted in late January 2022, most expect the first rate increase to come in November, more than a decade after the bank last tightened policy.
The pressure to act sooner is real. Underlying inflation reached its fastest annual pace since 2014 in the final quarter of 2021, catching policymakers off guard after Governor Philip Lowe had suggested a 2022 rate rise was unlikely. Markets have responded by pricing in a hike as early as May, and economists have shifted their forecasts forward for the third consecutive month. Still, the majority of those surveyed expect the bank to hold through the third quarter, with thirteen respondents believing the first move won't come until 2023.
Politics and wages may be the decisive constraints. The RBA has historically avoided changing rates during federal election months, and with an election approaching, that tradition could delay action until August at the earliest. Wage growth also remains below the 3% threshold the bank has signaled as a meaningful indicator of demand-side inflation. Morgan Stanley's Chris Read expects the February meeting to bring upgraded forecasts and an acknowledgment that inflation targets have been met — but no explicit commitment to near-term hikes.
Beyond the first move, economists see a gradual path upward: a 25 basis-point increase in the first quarter of 2023 and another in the second, bringing the cash rate to 0.75% — the level it held before the pandemic. With growth forecast at 4.0% for 2022 and inflation projected to sit within the RBA's 2–3% target band, the bank's task is less about whether to tighten and more about finding the moment that is neither too soon nor too late.
Australia's central bank is about to make a significant pivot. On February 1st, the Reserve Bank of Australia will announce the end of its bond-buying program—a pandemic-era stimulus measure that has been in place for nearly two years. But the bank will not be raising interest rates anytime soon. Instead, it will hold its cash rate at a record low of 0.10% and wait until November before making its first rate increase in more than a decade, according to a Reuters poll of economists conducted in late January 2022.
The timing reveals a central bank caught between two pressures. Inflation in Australia has accelerated faster than policymakers expected. The country's underlying inflation—the measure that strips out volatile items like fuel and fresh food—hit its fastest annual pace since 2014 in the final quarter of 2021. This was supposed to be temporary. Governor Philip Lowe had said just weeks earlier that a rate rise this year was unlikely. But the persistence of price pressures has forced a reckoning.
Money markets have already moved ahead of the central bank's apparent comfort level. Traders are pricing in a rate increase as soon as May, just two months after the U.S. Federal Reserve is expected to tighten policy in March. Economists surveyed by Reuters have also shifted their expectations forward for the third month running. Of the 34 economists polled between January 18th and 25th, most still expect the bank to wait until November for a 15 basis-point increase. But the distribution has widened: two economists see a hike in the second quarter, seven in the third quarter, eleven in the fourth quarter, and thirteen still believe the first move will come in 2023.
On the bond-buying question, economists were more aligned. Seventeen of the twenty-two who answered expected the RBA to announce an end to quantitative easing at the February 1st meeting. Five others thought the program would run until May. Chris Read, an economist at Morgan Stanley, said the bank would likely "end the QE programme, upgrade forecasts, acknowledge the inflation goal has been met and re-emphasise the focus on wages as a demand-side inflation signal." He added that while the bank would not explicitly guide toward near-term rate hikes, it would acknowledge the possibility. Morgan Stanley's own forecast is for a November liftoff, though Read noted that the latest inflation data raised the risk of an earlier move.
The political calendar may be the deciding factor. Australia is heading toward a federal election, and the RBA has not changed its policy rate during an election month since it began announcing decisions monthly in 2008. That constraint, combined with wage growth that remains below 3%, may push the first rate rise to August or later, according to Marcel Thieliant at Capital Economics. The last time the central bank raised rates was November 2010, when it lifted the cash rate to 4.75%.
If the November forecast holds, the rate increases would continue into 2023. Economists expect a 25 basis-point hike in the first quarter of next year and another 25 basis points in the June quarter, bringing the cash rate to 0.75%—where it stood before the pandemic struck. The broader economic picture suggests the bank has room to move. The poll showed inflation meeting the RBA's target range of 2 to 3 percent from the next quarter onward, with forecasts of 2.5 percent for 2022 and 2.3 percent for 2023. Economic growth is expected to reach 4.0 percent this year before moderating to 2.9 percent in 2023. The bank's challenge is to tighten policy enough to contain inflation without derailing that growth.
Bemerkenswerte Zitate
We expect them to end the QE programme, upgrade forecasts, acknowledge the inflation goal has been met and re-emphasise the focus on wages as a demand-side inflation signal.— Chris Read, economist at Morgan Stanley
The RBA hasn't changed its policy rate in an election month since it started to announce monthly policy decisions in 2008.— Marcel Thieliant, Capital Economics
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