Stephen Miller
I think it is pretty clear that the Reserve Bank of Australia (RBA) Monetary Policy Board approaches the next meeting with a clean sheet of paper. That was implied by a split 6-3 vote to increase the policy rate to 4.85 per cent at its November meeting.
In her press conference the Governor indicated that the dissenters from the majority position were more inclined to put a little more weight on the notion that inflation may well respond sooner to prior increases in the policy rate. In other words the dissenters didn’t place the same emphasis on the upside risks to inflation and were more concerned on downside risks to growth and the labour market.
With now five policy interest rate increases in 2026 and given the lags with which monetary policy operates and given the relative paucity of data points between now and the next RBA meeting on 7-8 December, a further hike at that meeting seems a remote prospect.
The October labour force report is released on 19 November and it is difficult to conceive a number strong enough to make the RBA meeting in December contemplate a further policy rate increase.
The October monthly consumer price index (CPI) is released on 25 November. It is a credible argument that even in the (I think unlikely event) of an upside surprise relative to the newly issued, and upwardly revised, November RBA Statement of Monetary Policy (SoMP) inflation forecast, that the November policy rate increase has anticipated that.
That doesn’t mean that the policy rate is at a peak but that the RBA has given itself some room to sift through more data before coming to a determination on whether or not to entertain a policy rate increase.
By the time that the first meeting for 2027 takes place on 8-9 February the RBA will have sufficient data to make that judgement.
Without any great conviction, I would conjecture that signs of a cooling labour market combined with no materialisation of further upside inflation risks relative to the November SoMP forecasts probably mean that a “hold” is likely at the February meeting which suggests we are at peak policy rate.
But I might be wrong…
Bank of England: an almost certain November rate increase
The Bank of England (BoE) meets tonight in an environment that might feel uncannily familiar to Australians: inflation is “sticky”; the labour market is cooling but a little more resilient than feared; fiscal policy is lax with no meaningful consolidation in sight; and the government is struggling politically (if in a slightly better position than a couple months prior).
Perhaps most importantly the most recent UK September consumer price index was troubling enough to ensure a policy rate increase.
The inflation data were a tad higher than expected with the Septem headline and core annual rates at 3.5 per cent and 2.8 per cent respectively (compared with expectations of 3.4 per cent and 2.7 per cent respectively). Services inflation remains “sticky” at 3.7 per cent. The target is 2 per cent for headline inflation.
That the September employment and unemployment reports released a couple of weeks ago indicated some resilience in the labour market eases the risk that some BoE Monetary Policy Committee members may harbour regarding the fallout from a rate hike on the labour market.
Despite the more positive signs for the labour market in September, it seems the economy is in a state of cyclical fragility, and the UK also has somewhat of a structural inflation proclivity. In some ways, the inattention to structural elements has been more egregious than that attaching to Australia and in that context it is surprising that inflation has at the margin been better behaved. That may be attributable to a greater cyclical fragility.
In any case, inflation remains well north of the 2 per cent target and the September report reinforces an almost universal view that the BoE will increase the policy rate by 25 basis points to 4 per cent at the November meeting.
Such a move won’t surprise the markets which have fully priced such an eventuality.
October Eurozone inflation points to a December ECB policy rate rise
In what is an increasingly familiar event in the developed country complex, the Eurozone October inflation report released overnight came in above the central bank’s target 2 per cent.
October preliminary CPI (HICP) was 4.0 per cent (up from 3.8 per cent in September) while the core reading was unchanged at 2.5 per cent.
Viewed against a policy (deposit facility) rate of 2.5 per cent monetary policy would hardly be described as restrictive.
That probably means a 25 bp policy rate increase when the European Central Bank concludes its meeting on 17 December.
Such a move would follow the 25bp increase overnight to 2 per cent from Sweden’s Riksbank. Norway’s Norges Bank is expected to stay put tonight at 4.5 per cent.
By Stepehn Miller, investment strategist
