Hike rates

RBA to hike rates by 50 basis points in October, top rate pushed higher

BENGALURU, Sept 30 (Reuters) – Australia’s central bank will raise interest rates by half a point on Tuesday and raise borrowing costs more than expected in its most aggressive tightening cycle since the 1990s to halt the inflation, according to a Reuters poll.

At the August meeting, Reserve Bank of Australia (RBA) Governor Philip Lowe tempered expectations for further hikes as they approached the estimated neutral level of 2.50%, a level that neither stimulates nor restricts economic activity.

But with the US Federal Reserve raising rates by 75 basis points last week and expected to raise borrowing costs more than expected, many central banks should follow suit to prevent their currency from weakening further against to the US dollar.

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The Australian dollar, down more than 12% on the year, hit its lowest level in two years on Wednesday.

More than 70% of economists, 21 out of 29, in the September 26-29 Reuters poll predicted the RBA would raise its key rate by half a point to 2.85% at its October 4 meeting. The other eight forecast a smaller increase of 25 basis points.

If realized, it would mark the fifth consecutive 50 basis point hike, corresponding to the fastest cycle of hikes since 1994, when rates rose from 4.75% to 7.50%.

“A lot of global interest rate expectations are set in the United States,” said Tony Morris, head of Australian and New Zealand economics at Bank of America.

“If the Reserve Bank does not maintain the current pace, further currency weakness will translate into a much faster pace of domestic inflation.”

Although the median forecast showed rates rising another 50 basis points next quarter to peak at 3.35%, there was a five-way split among economists on where they stand at the end of 2022.

While 11 out of 27 economists were of the median view, one said 3.50% and two said 3.60%. Of the remaining 13 economists, ten said rates would end the year at 3.10% and three at 2.85%.

Only four of 29 economists predicted a cash rate of 3.35% by the end of 2022 in an August poll, when the peak rate was expected to be 3.10%.

Reuters Poll: Reserve Bank of Australia Inflation and Monetary Policy Outlook

With inflation at a 21-year high of 6.1%, more than double the RBA’s target range of 2% to 3% and expected to remain roughly above until early 2024, the maximum interest rate could be revised upwards again.

Indeed, 11 out of 25 analysts, or 44%, expected rates to rise above the currently expected peak of 3.35% by the end of the first quarter of 2023.

The survey showed inflation averaging 7.0% this quarter, then peaking at 7.5% the next. In 2023, it was expected to average 4.5%, then drop to 2.7% in 2024.

A new official monthly measure of Australian consumer prices showed on Thursday that annual inflation eased slightly to 6.8% in August from 7.0% in July.

“Our forecast depends on several factors, such as well-anchored medium-term inflation expectations, a sustained recovery in wage growth and an easing of global inflationary pressures,” said Jameson Coombs, economist at St. George Bank. .

“If upside risks to inflation materialize, the RBA board may have to go beyond our expectations for the terminal rate.”

Australia’s economic growth is expected to average 4.0% this year, then halve to 2.0% in 2023 and 2024.

(For more articles in the Reuters Long-Term Global Economic Prospects Polls Brief:)

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Reporting by Shaloo Shrivastava; survey by Devayani Sathyan & Anant Chandak; analysis by Arsh Mogre, editing by William Maclean

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