The comments should keep the Australian dollar supported, at the margin, on rate differentials and hold short-dated Australian government bond yields elevated, with markets likely to lean further toward a November hike unless Wednesday’s inflation data surprise lower. Oil is the swing variable: renewed escalation in the US-Iran war that lifts crude would deepen the RBA’s concern about second-round effects and raise the risk of tightening beyond November. A sustained easing in crude, by contrast, would give the board more room to signal a pause after its next move. Property-linked stocks and consumer discretionary names on the ASX remain exposed to a higher-for-longer policy path.
–
Earlier:
—
Four hikes in, the RBA’s forecasting chief says the job is not finished, with war-driven oil costs working their way into supply chains and a fifth increase looking likely on November 3.
Summary:
- RBA Assistant Governor Sarah Hunter said the bank has “not quite yet” done enough to bring inflation under control, in a television interview aired Sunday evening Australian time
- She declined to pre-empt the board’s decision but said policymakers remain committed to getting inflation down; the next meeting is November 3
- Hunter said higher oil prices linked to the US-Iran war are becoming embedded in some supply chains, with more of that effect expected
- Deputy Governor Andrew Hauser said on Wednesday the inflation outlook is materially worse than the bank assessed in August
- The cash rate stands at 4.6%, a 15-year high, after four hikes this year; Hunter said falling house prices are not causing systemic financial stress
- Third-quarter CPI is due Wednesday, with trimmed mean inflation expected at 3.6%, similar to the prior quarter
Reserve Bank of Australia Assistant Governor Sarah Hunter said the central bank has not yet finished its fight against inflation, reinforcing expectations that policymakers will raise interest rates again when they meet on November 3.
Speaking in an interview with Nine Network’s 60 Minutes, broadcast on Sunday evening Australian time, Hunter noted that the board had delivered four rate increases this year to tackle persistent price pressures. Asked whether that tightening had been enough to tame inflation, she replied “not quite yet.” She declined to front-run the board’s next decision, but stressed that policymakers remained committed to bringing inflation down.
Her remarks build on comments from Deputy Governor Andrew Hauser on Wednesday, when he said the inflation outlook had become materially worse since the bank’s August assessment. Those remarks had already lifted market expectations for a hike at the November meeting.
Hunter, who oversees economic forecasting at the RBA, pointed to the ongoing US-Iran war as a source of renewed pressure. Higher oil prices linked to the conflict are beginning to become embedded in some supply chains, she said, adding that the bank expects more of that pass-through to come. The comment suggests the RBA is increasingly concerned that the energy shock is spreading beyond fuel prices into the broader cost base of the economy, which would make inflation more persistent and harder to bring back down.
The RBA lifted its cash rate in late September to 4.6%, the highest level in 15 years. A further increase would add downward pressure on Australian property prices, which have already been falling. Hunter said the decline in house prices was not, so far, creating systemic financial stress across the system, a signal that the bank does not see housing weakness as a reason to hold off.
Attention now turns to Wednesday, when Australia’s third-quarter consumer price data are released. The trimmed mean measure of underlying inflation is expected at 3.6%, broadly in line with the previous quarter. Governor Michele Bullock and other policymakers are also scheduled to appear before parliament the same day, giving them another opportunity to set out their thinking ahead of the decision. A reading in line with forecasts, combined with the oil-driven pressure Hunter described, would likely leave a November hike as the market’s base case.
—
The same day as the CPI data is due the RBA big guns appear in pariament:
This article was written by Eamonn Sheridan at investinglive.com.