Failure to act on high CPI threatens to damage the Reserve Bank of Australia’s credibility

TD says the response to yesterday’s inflation data in Australia needs to be an RBA rate hike.

• Q3 CPI data handily beat the RBA’s and analyst forecasts
• Along with the Q2 trimmed mean measure being revised up and strong signs of domestic inflation, there is now a clear signal for monetary policy to respond
• We now expect the RBA to hike 25 bps at next month’s meeting to 4.35% on the target cash rate

And, the kicker:

• We believe failing to act could harm the RBA’s credibility

TD are correct. They should have added that the RBA’s credibility took a pounding from when it made its ill-fated pledge that it didn’t expect conditions to be in place to begin hiking rates until 2024. Then is prevaricated in the face of surging ‘transitory’ inflation (remember that global central bank groupthink disaster?) and delayed, and delayed, getting started with a rate rise cycle.

You’d have thought they’d learnt something. Maybe they have, but today’s remarks from Reserve Bank of Australia Governor Bullock brought back memories of a complacent institution.

• RBA Bullock says CPI was a little higher than expected, but about where we thought it’d be
• AUD/USD lower as RBA Gov. Bullock speaks
• RBA Gov. Bullock says still considering whether CPI was a “material” change to outlook

• RBA Bullock says inflation forecasts will change, not sure if change will be ‘material’
• RBA Bullock on inflation: “we’re wary”. On rates: “not sure if job is done”

Those were the days …

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BTW, other rate hike forecasts:

• UBS forecasts a November RBA interest rate hike, and likely more to come after that

• Westpac now forecasting a November Reserve Bank of Australia rate hike

• RBA rate hike incoming on November 7 – will they hike again in December?
• Commonwealth Bank of Australia forecast a 25bp RBA rate hike on November 7
• Australia – Demand for luxury supercars “through the roof”
• Australian Treasurer Chalmers says inflation is moderating but persistent
• ANZ forecasts a 25bp RBA interest rate hike on November 7 (previous forecast was December)

You won’t find National Australia Bank in that lot above – analysts there had been forecasting a November rate hike prior to the data yesterday.

This article was written by Eamonn Sheridan at www.forexlive.com. Source