Australia central bank set to raise rates as inflation pressure persists
Australia is heading toward another monetary policy tightening step as policymakers seek to rein in one of the strongest inflation bursts in the developed world. Economists broadly expect the Reserve Bank of Australia to lift the cash rate by 25 basis points to 4.85% on Tuesday, which would mark a fifth increase this year and take borrowing costs to an 18-year high.
Highlights
- Reserve Bank of Australia expected to raise cash rate by 25 basis points to 4.85% at 2:30 p.m., with money markets pricing 80% probability.
- Updated economic forecasts accompanying the rate decision will influence expectations regarding the duration of restrictive monetary settings.
- Governor Michele Bullock to hold a press conference an hour post-decision, offering guidance on inflation outlook and monetary policy trajectory.
Expected rate decision and market pricing
As reported by Bloomberg, most economists expect the Reserve Bank of Australia's nine-member board to raise the cash rate by a quarter-percentage point to 4.85% when it announces its decision at 2:30 p.m.Money markets are pricing about an 80% chance of an increase, underscoring expectations that the central bank remains focused on containing persistent price growth.
Forecast update and policy implications
The decision is due to be accompanied by updated economic forecasts, which are likely to shape expectations for how long restrictive settings may remain in place.Governor Michele Bullock is also set to hold a press conference an hour after the decision, giving investors and businesses further guidance on the inflation outlook and the path of Australian monetary policy.
In our earlier coverage of the Federal Reserve’s upcoming rate decision, we examined how disagreements inside the Fed over how openly officials should communicate policy were influencing market pricing for the next move. We noted that frequent speeches and interviews helped cool expectations for further hikes after September’s increase, even as firm inflation data kept the outlook uncertain and made the next decision highly data-dependent.
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