Interbank futures imply a 57 percent chance of a 0.5 percentage point increase at the RBA’s Oct. 4 policy meeting, down 61 percent before the release of the September minutes. They are fully priced for a move of 0.25 percentage point. The three-year interest rate fell by 8 basis points to 3.37 percent.
Overweight of a quarter of a percentage point gain reinforced the picture of an imminent slowdown in tightening, some economists said.
“There was no such statement in the August board minutes,” said Gareth Aird, Australian economist at Commonwealth Bank. Combined with the language that “members saw the arguments for a slower pace of rate hikes stronger as the level of spot interest rates rises,” Mr Aird said this bolstered his own call for a smaller hike.
“We have heard nothing in the governor’s testimony to shift our call that the next step in cash interest rates will be a 25 basis point ‘business as usual’ increase at the October meeting,” Mr Aird said. The CBA expects another quarter of a percentage point increase in November, pushing the cash interest rate to a peak of 2.85 percent.
Of the four major banks, CBA is the only one to predict an increase of 0.25 percentage point next month.
On Monday, Westpac, along with ANZ and National Australia Bank, forecast a half a percentage point rise in spot interest rates at the Reserve Bank’s October meeting to 2.85 percent.
All four agree that the RBA will switch to 0.25 percentage point increments from November.
According to David Plank, Australian economics chief at ANZ, the minutes supported expectations that the RBA will soon scale back the size of its rate hikes, “but not in October, where data and tactical considerations favor a 0.5 percentage point move.” .
NAB was less certain about its projection of a 0.5 percentage point increase next month.
“Knowing that a 0.25 percentage point increase was considered but was rejected in September makes us a little less confident in this call,” said Taylor Nugent, an economist at NAB. Still, NAB maintained its forecast given strong inflationary pressures and resilient spending data.
However, the first release of monthly inflation data on September 29 could influence some forecasters.
Australia’s Bureau of Statistics said on Tuesday it will release monthly CPI data for July and August ahead of schedule with details on spending groups and selected spending classes. The first full monthly CPI and inflation releases for the September quarter will be released on October 26.