- The RBA board will come together tomorrow for its November meeting
- The vast majority of experts are predicting the meeting will result in a cash rate hike
- Economists at each of the big four expect the cash rate will be increased by 25 basis points to 4.35%
Many experts are unanimously forecasting a 25 basis point hike, bringing the cash rate to 4.35%.
If such expectations are realised, the Australian cash rate will find itself at a 12-year high as the ante is upped for already-struggling mortgage-holders.
More than 1.5 million homeowners were ‘at risk’ of mortgage stress in the September quarter, Roy Morgan found.
But such suffering appears unlikely to subdue the RBA board.
Just hours before the quarterly consumer price index (CPI) read surprised on the upside, RBA governor Michele Bullock vowed the board “will not hesitate” to act against stubborn inflation.
Headline inflation increased 5.4% year-on-year in the September quarter and 1.2% over the three months ended 30 September.
Much of the increase was due to the rising cost of renting (up 2.2% quarter-on-quarter) and higher fuel prices (recording a 7.2% increase last quarter) – both of which are unlikely to be dampened by a rising cash rate.
Still, the RBA – the 'officer in charge' of battling inflation – only has one weapon: rate hikes.
And the vast majority of economists are forecasting tomorrow to bring the thirteenth hike of the current cycle.
(Nearly) all signs point to RBA cash rate hike
The stage seems to be set for yet another November rate hike, with November having historically brought more cash rate increases than any other month.
According to the expectations of 34 out of 39 economists polled by Reuters (nearly 90%), Australia’s central bank board will break its four-month holding spree tomorrow afternoon.
The market, on the other hand, appears less certain.
The ASX RBA Rate Tracker found just 50% of traders were expecting a hike as of Friday, with the other half tipping a pause.
Economists at all four of the nation’s big banks are among those calling a hike, with three having changed their tune in recent weeks.
Look back a few weeks, and only NAB economists were tipping a November hike.
Those at CommBank, ANZ, and (perhaps tellingly) Westpac each updated their forecasts to predict a hike shortly after the Australian Bureau of Statistics (ABS) released the latest quarterly inflation read.
It’s the first time Westpac’s chief economist Luci Ellis has called a hike.
Ms Ellis recently absconded from the RBA’s ranks to take the top job at the big four bank’s economic division.
She noted the September read “was always going to be crucial” and that while quarterly inflation was only slightly above Westpac’s forecast, “the underlying detail was sobering”.
“So yes, I’ve seen enough to make my first-ever rate call to be a prediction of a hike,” the former RBA insider said late last month.
Economists at each of the quartet expect the RBA will put forward a 25 basis point hike tomorrow, bringing the cash rate to a 12-year high of 4.35%.
Still, a November hike isn't yet guaranteed.
Scott O’Neill, founder and managing director of Rethink Investing and author of Rethink Property Investing, is among those who see potential for a cash rate pause.
“While this decision could offer immediate relief to homeowners, it raises concerns about the prolonged stability of interest rates,” he said.
“If rates remain stagnant, homeowners might face a protracted period of uncertainty, unsure of when or if favourable changes in interest rates will occur.”
Mr O’Neill also noted that, if the cash rate were to increase tomorrow, it could pave the way for rate cuts to come sooner than they otherwise might have.
“This could create a dynamic situation where interest rates remain elevated for a brief period, subsequently leading to a faster economic recovery and lowering of rates in the following year,” he said.
“Homeowners, therefore, might find themselves in a more favourable lending environment, with lower mortgage rates and increased affordability.”