The All Ordinaries Index rose just 0.23 per cent on Wednesday (8 November), weighed down by some of Australia’s largest companies listed on the S&P/ASX 200 index, which gained just 0.19 per cent.
Mining heavyweights Rio Tinto and BHP lost over 2 per cent of their value while Fortescue Metals slipped 1.3 per cent.
Australian 10-year bond yields were also flat, falling to as low as 4.58 per cent before returning to just over 4.6 per cent.
This follows the Reserve Bank of Australia’s (RBA) decision to lift the official cash rate by a further 25 bps to 4.35 per cent – the 13th hike since May 2022.
Since commencing its tightening cycle, the RBA has lifted rates by a cumulative 425 bps in an effort to return inflation to the 2–3 per cent target range.
The RBA’s post-meeting statement was less hawkish, with the central bank replacing “some further tightening may be required” with a more dovish reference.
“Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks,” the revised statement reads.
However, according to Phil O’Donaghoe, chief economist at Deutsche Bank Australia, the RBA’s tightening cycle is not over.
“Our baseline since August has been for a 25 bp hike in November and a follow-up hike in December. We keep that call in place,” he said.
“If key data points over the coming month (specifically Q3 wages, the inflation indicator and labour force survey for October) beat expectations, and if house prices keep rising, a follow-up hike in December will be justified and could easily be delivered.”
Mr O’Donaghoe concedes the December hike scenario “strings a lot of individual events together” but said he would not revise his forecast unless upcoming economic indicators point to a reacceleration in disinflation.
“…We see no point in shifting our call unless and until those data points dictate otherwise: key Australian inflation and activity data have generally beat expectations all year,” he said.
“Will the next month suddenly bring a stop to that?”
The Deutsche Bank economist expects the Reserve Bank to halt its tightening cycle at a terminal cash rate of 4.6 per cent.
Sean Langcake, head of macroeconomic forecasting at Oxford Economics, agrees, adding one 25 bps hike in November would not be enough to allay the RBA’s inflation fears.
“If the RBA are worried enough about the inflation outlook to hike rates, a single 25 basis point increase is unlikely to assuage their concerns,” he said.
“The board may opt to wait for the next set of inflation data and raise rates in February. But a strong WPI print next Wednesday will likely be enough to ensure another hike in December.”
However, other observers, including Bank of America economist Micaela Fuchila, expect the November “insurance hike” to mark the end of the RBA’s tightening cycle.
“While the RBA retains its option to hike open, we see this hike as an insurance hike to reinforce the hawkish stance, but we don’t expect any further tightening this year or in 2024,” she said.
Commonwealth Bank’s head of Australian economics Gareth Aird and AMP chief economist Shane Oliver have said they expect the RBA to begin cutting the cash rate by mid-2024.
