Reserve Bank of Australia May Raise Rates for 5th Time

The Reserve Bank of Australia announced that despite 4 interest rate hikes this year, the fight against consumer price inflation (CPI) is not yet over and a new increase is on the table at the November 3 meeting. The bank's Assistant Governor in charge of economic forecasts, Sarah Hunter, responded "not yet" in a televised interview when asked whether tightening steps were sufficient to bring inflation under control.

When will the interest rate decision be made?

Having raised the policy rate to 4.6% at the end of September, its highest level in 15 years, the board is keeping the door open to a new rate hike. Hunter noted that high oil prices triggered by the war between the US and Iran have begun seeping into supply chains. The energy shock spreading beyond fuel into the general cost base increases the risk of inflation becoming entrenched.

How do oil prices affect inflation?

The bond market and interest rate expectations have focused on the 3rd quarter consumer price index to be released on Wednesday. Market analysts forecast annual core inflation to come in at 3.6%. On the same day, Reserve Bank of Australia Governor Michele Bullock and board members will deliver a presentation to parliament. If inflation data comes in line with expectations, it will make a 5th rate hike at the November meeting the baseline scenario.

Volatility in the oil market plays a decisive role in the bank's decisions. In recent trading, Crude Oil (WTI) climbed by a daily 3.82% to 103.27 dollars. Brent Crude is changing hands at 111.70 dollars, down 1.30%. A continued climb in crude oil keeps alive the prospect that the board may tighten monetary policy even beyond November.

Falling housing prices are also not enough to slow the bank's pace of rate hikes. Sarah Hunter explained that easing in the property market does not pose a systemic financial risk, and therefore the board will not back down from its tight monetary policy.

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