- Exports M/M Dec: -1% (prev 0%)
- Imports M/M Dec: 1% (prev -1%)
- Household Spending Y/Y Dec: 0.1% (est -0.4%, prev -1.2%)
- Real Cash Earnings Y/Y Dec: -1.3% (est -1.5%, prevR -2.5%)
- Most economists forecast another 25bps rate rise
- Policy tightening expected into April meeting
- Q4 CPI indicates that inflation increased
- Decision due Tuesday at 03:30 GMT
By Selin Gücüm
LiveSquawk News
7 February 2023 | 03:30 GMT
The Reserve Bank of Australia is set to continue to tighten policy and increase its main interest rate by 25 basis point for fourth consecutive time, taking the main rate to 3.35%.
While this would be the highest interest rates since September 2012, RBA governor Philipp Lowe remained “committed to doing what is necessary” to reduce the inflation back to the 2-3% target, as stated in his speech in September.
Inflation in Q4 was stronger than expected, putting further pressure on the RBA to act with at least a quarter point hike at the February meeting.
Despite the cooling economy on the back of the weaker hiring rate and household spending, consumer prices accelerated in Q4, as inflation rose at its fastest since Q1 1990.
“The impact of monetary tightening to date can be seen in parts of the economy, with the housing sector declining moderately. But significant price pressures remain, demonstrated by the 7.8% annual increase in prices in the December quarter. Two-year inflation expectations came down in the December 2022 survey to around 3%.” noted Moody’s Capital Market Research.
Inflation has shown few signs of slowing and rate setters are forecast to hike again in March. In fact, a further quarter point tightening of monetary policy is priced in for April.
Analysts at BofA Global Research explained that “further hikes will be data dependent, with the RBA likely to be very sensitive to signs that the weakness in the housing markets is spilling over into employment and consumer spending.”
RBA is likely to become more measured on future increases as most developed market central banks slow the pace of current tightening campaigns. To date, the Fed and ECB, have signalled borrowing costs have moved closer to their respective terminal rate objective. Whereas the Bank of Canada has flagged a desire to pause rate increases.
“Given the momentum in underlying inflation at present, and prospects for accelerating wage growth in H1 23, we believe the RBA will likely continue hiking at the April and May meetings, before it pauses to assess the effects of tightening. We see the risks around our 4.1% terminal rate forecast as balanced.” posited analysts at BofA Global Research.
In remarks at the end of November, RBA Governor Lowe appeared confident that Australia would be able to pilot its economy to a “soft landing”.
A new reading of the Global Supply Chain Pressure Index has been posted.
The GSCPI compiles more than two dozen metrics across seven economies—data on global transportation costs and regional manufacturing conditions—to track shifts in supply chain pressures from 1997 to the present.
The GSCPI is updated regularly at 10:00am ET on the fourth business day of each month.
The GSCPI is a product of the Federal Reserve Bank of New York’s Applied Macroeconomics and Econometrics Center.
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