RBA’s First Female Governor Takes Charge: Will Interest Rates Hold Steady or See Year-End Hike?

Interest rates are unlikely to change after a Reserve Bank of Australia board meeting but a final hike before the end of the year is still on the table, as the central bank’s first female governor gets to work.

The RBA has left the official cash rate unchanged at 4.1 per cent for the past three months, following its regular meeting on monetary policy.

Tuesday’s meeting will be the first under the leadership of Michele Bullock, who last month replaced Philip Lowe.

A total of four percentage points of interest rate hikes has been delivered since April last year when the cash rate was at a record low of 0.1 per cent.

A surge in inflation forced the central bank to start hiking interest rates, but the pace of price growth has since been moderating, giving the RBA space to stay on the sidelines.

An uptick in the August consumer price index, particularly across services and core measures, has injected some complexity into the inflation battle.

But the central bank is widely expected to wait for the full quarterly set of price data due later this month before considering any further tightening.

Thirty of 32 economists surveyed by Reuters expect the central bank to keep rates steady at Tuesday’s meeting, with a small majority predicting one more hike before the end of the year to take the cash rate to 4.35 per cent.

Economic teams at the big four banks are all tipping a hold in October with NAB the only one expecting one more 25 basis point rise in this cycle.

ANZ believes the RBA is on an extended pause but warns the chance of another hike has edged higher.

“While much of the lift in inflation reflects volatile items, such as petrol prices, which we think the RBA can look through, there was also a little more inflation in other parts of the basket versus our expectations,” ANZ head of Australian economics Adam Boyton and his colleagues wrote in an economic note.

The ANZ economists said signs that inflation could be running a little higher than expected suggest any move in 2023 or early next year will likely be a hike, rather than a cut.

Nationals leader David Littleproud on Tuesday called on the RBA to acknowledge the cost-of-living pressures that continue to weigh on Australians.

“It’s really hurting out there at the moment and hopefully the RBA understands the pain,” he told Nine’s Today Show.

“They’ve just (got to) put the finger out the window and feel the breeze.”

Meanwhile, consumers have been reporting extremely low confidence levels by historical standards, with ANZ and Roy Morgan’s latest index recording another result well below the 111.1 monthly average since 1990.

Confidence did improve a little last week, however, lifting 1.8 points to 78.2.

The improvement was recorded despite the monthly consumer price index, which was released last week, lifting to 5.2 per cent, fuelled by higher prices at the petrol pump.

Weekly inflation expectations also softened a minor 0.2 percentage points to 5.2 per cent despite the well-publicised growth in consumer prices.

The more optimistic week for consumers was driven by a 3.2 point lift in how households were feeling about financial conditions at the moment.

The ‘future financial conditions’ component also lifted a convincing 2.4 points.