RBA to flag end of ultra-loose policy in Cup Day decider

The Reserve Bank’s Cup Day meeting on Tuesday will mark its retreat from the extremes of ultra-loose monetary policy in what is shaping up as a historic policy shift necessitated by a recovery in growth and inflation.

Economists expect governor Philip Lowe will officially retire the yield curve control policy tool, after it was crushed by a runaway bond market, and upgrade the RBA’s inflation projections. Under forward guidance, the RBA has assumed the conditions needed for a rate rise will not be in place until 2024. But that timeline appears set for the scrap heap in the hotter inflation scenario many advanced economies are now facing.

“We expect the RBA to shift its forward guidance and signal it could start to hike rates in the second half of 2023,” said Richard Yetsenga, ANZ’s chief economist.

Pricing in the rates futures market is even more aggressive indicating the February 2022 meeting is a live one on traders’ positioning for around five interest rate rises, to take the cash rate to almost 1.5 per cent by the end of 2022.

Dr Lowe needs inflation sustainably within the bank’s 2 per cent and 3 per cent target band before he will act on rates. The September quarter consumer price growth figures issued last week put in doubt the RBA’s current thinking, as CPI has already edged into target on the preferred adjusted measure for the first time in six years.

Still, economists believe the RBA will be patient on rates, preferring to wait for evidence that inflation will endure. It has not lifted the cash rate in more than a decade.

Be the first to comment

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.