November hike: Reserve Bank of Australia adopts balanced stance, says Standard Chartered

The Reserve Bank of Australia’s (RBA) cash rate rose to 4.85% in November. Standard Chartered’s Nicholas Chia examines the 6-3 split decision, arguing that the report’s policy assessment is less dovish than markets perceived. Governor Bullock emphasised upside inflation risks and higher estimates of NAIRU and the neutral rate. Further increases or a later start to easing remain possible, with the first cut tentatively expected in Q3-2027.

4.85% cash rate: Policy options remain open

"The Reserve Bank of Australia (RBA) hiked the cash rate to 4.85% at the 3 November meeting, as we and market consensus had expected. The 6-3 split decision and the omission of references to further cash rate increases in the statement were likely read by the market as dovish. That said, the statement still cited upside risks to inflation and conceded that capacity pressures have been tighter than previously thought."

"Governor Bullock struck a balanced tone at the press conference, in our view. She dismissed suggestions that the omission of references to further cash rate increases in the statement implies that the RBA is done with hiking, stressing that the RBA is “preserving our options”. She indicated that both the non-accelerating inflation rate of unemployment (NAIRU) and the neutral interest rate have crept higher, although she did not provide estimates for either measure."

"Our base case is that the RBA is done with rate hikes, and the market is similarly not pricing in any more hikes in 2027. We would continue to watch for the risk of follow-through hikes by the RBA (or of a later start to policy easing in 2027). We tentatively expect the first rate cut in Q3-2027; the RBA has recently shown little aversion to hiking rates to multi-year highs as upside risks to inflation materialise."

"For now, we think it will prefer to wait and reassess the economic backdrop at subsequent meetings amid external uncertainty, elevated oil prices and positive spillovers from global tech spending."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)