Reserve Bank of Australia: Balanced stance after November hike – Standard Chartered

Standard Chartered’s Nicholas Chia reviews the Reserve Bank of Australia’s (RBA) November decision to lift the cash rate to 4.85% in a 6-3 split vote. The report highlights a less dovish tone than markets perceived, with Governor Bullock stressing upside inflation risks, higher NAIRU and neutral rate, and the possibility of follow-through hikes or delayed easing, with the first cut tentatively expected in Q3-2027.

Policy options kept firmly 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.)