Australia: RBA is seen keeping rates unchanged in December

Senior Economist at UOB Group Alvin Liew comments on the latest interest rate decision by the RBA.

Key Takeaways

As we had expected, the Reserve Bank of Australia (RBA) decided to raise the cash rate target by 25-bps to 4.35%. The decision was widely projected by us and markets (The Bloomberg survey showed 29 of the 32 economists polled expecting a 25-bps hike while the remaining three expected no change). The interest rate paid on Exchange Settlement balances was also raised by 25 bps to 4.25%. This is new RBA Governor Michele Bullock’s second meeting in charge and the first hike after the RBA held rates steady for four consecutive meetings.

In justifying the hike, the RBA in its accompanying statement said that “Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago”.

Following [Tuesday's] expected hike and the more dovish-sounding policy guidance in Nov, we keep our RBA policy outlook unchanged. We expect the RBA to keep the peak policy rate of 4.35% for Dec and 1Q 2024. Thereafter, we expect the first rate cut to take place in 2Q 2024. We are pencilling a total of 85-bps cuts next year, to bring the RBA cash rate to 3.5% by 4Q 2024.

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