Economists forecast a cash rate hold in October

The Reserve Bank of Australia (RBA) is set to meet for its October monetary policy meeting today (3 October 2023), marking the first board meeting with new RBA governor Michele Bullock after former governor Philip Lowe’s retirement in September.

Up until now, the RBA has lifted the official cash rate by 400 bps since May 2022, bringing the cash rate to 4.1 per cent where it has remained since June 2023. The consensus among the market and economists alike is that the peak of the cash rate has been realised and that sentiment seems to have remained strong.

Major banks Westpac, ANZ, and the Commonwealth Bank of Australia (CBA) have once again predicted another hold in the cash rate. Economists from these major banks previously confirmed that the next movement in the cash rate will likely be rate cuts over 2024.

CBA senior economist Stephen Halmarick said the RBA is expected to retain its tightening bias and “be alert to the inflation and wages data over the final months of 2023”.

“But given the recent mixed data flow and our view that inflation will trend towards the 2–3 per cent target range in 2024 we hold to the view that the hurdle to another rate hike is high.” Mr Halmarick said.

ANZ’s research team stated they expect another “hawkish pause” and that the post-meeting statement will “likely note the labour market is still tight but easing and that inflation remains too high”.

“We suspect higher petrol prices and the associated upside risks to consumers’ inflation expectations will also rate a mention,” it said.

Westpac chief economist Bill Evans said the major bank is “certain” that the RBA will continue to pause the cash rate and a move in October would “be very surprising” considering the holds seen in August and September.

Mr Evans added that the monthly Consumer Price Index (CPI) data for August is “unlikely to be a game changer” despite annual inflation rising from 4.9 per cent in the 12 months to July to 5.2 per cent, which primarily reflected “a 9 per cent lift in petrol prices”.

“A more reliable monthly Indicator than the Trimmed Mean monthly, which excludes volatile items, actually slowed from 5.8 per cent to 5.5 per cent,” he added.

NAB still remains the outlier among the big four banks in regard to 4.1 per cent being the cash rate peak.

Although the major bank has pencilled in a pause in today’s meeting, it recently updated its prediction for the final cash rate hike, which would bring the cash rate to 4.35 per cent, from December to November 2023.

Outside of the major banks, non-major bank AMP Bank chief economist Shane Oliver pointed to two data points – slowing retail sales growth and a drop in job vacancies – that will likely sway the RBA’s decision to hold the cash rate.

Mr Oliver said that this data confirms “ongoing weakness in consumer spending and a still tight but cooling labour market, and we see it as boosting the case for the RBA to leave rates on hold next week which we think they will do”.

RBA waiting for further data

The minutes from the September board meeting confirmed that the RBA would wait to observe the full effects of what the 400-bp rises will have on the broader economy.

During his final monetary policy minutes meeting, Mr Lowe stated that “members recognised the value of allowing more time to see the full effects of the tightening of monetary policy since May 2022, given the lags in the transmission of policy through the economy”.

[RELATED: August CPI fulfils market expectations]