As the Reserve Bank (RBA) prepares to hand down its final rate decision of the year on 6 December, all eyes will be on RBA governor Philip Lowe as he delivers his next speech on Tuesday.
The speech at the 2022 Annual CEDA Dinner will be “anxiously awaited” by the market, according to eToro market analyst Josh Gilbert, after the minutes of the November monetary policy meeting showed a willingness to return to larger rate hikes if required.
“RBA has raised interest rates [to] 2.85 per cent in just seven months in order to combat the country's highest inflation in more than 30 years,” he said.
“Given the high level of inflation, we forecast governor Lowe to reiterate that more rate hikes are on the way, while also emphasising the sensitivity of these rate hikes to the housing market.”
The central bank recently announced that it now expects headline inflation to peak at 8 per cent in the December quarter after reaching 7.3 per cent in the September quarter.
“This means we will see rate rises long into next year and stay higher for longer,” said Mr Gilbert.
“Philip Lowe and his team are looking to thread the needle to deliver a soft landing, a tough task, but something that isn’t out of reach.”
Commonwealth Bank senior economist Kristina Clifton predicted that given the title of the speech is Price stability, the supply side and prosperity, governor Lowe may choose to focus on the cooling of some of the supply side issues in the global economy.
“On the topic of prosperity, Lowe may emphasise the RBA’s recent messaging around the desire to preserve some of the gains made in the labour market while at the same time slowing the economy and bringing inflation back to target,” she added.
Meanwhile, economists at ANZ said in a recent note that the RBA’s “narrow” path to keeping the economy on an “even keel” is getting even narrower.
“Robust wages and employment growth cements a 25 bp rate hike for December. And we think the RBA will deliver at least another 75 bps of hikes by May 2023, which will take the cash rate target to 3.85 per cent,” they predicted.
However, the economists noted that they are increasingly questioning whether rates could go even higher than this, with wage growth set to be a key factor.
They said that the 1.2 per cent quarterly increase in private sector wages seen in the latest Wage Price Index from the Australian Bureau of Statistics suggests that wage growth is catching up with the tightness in the labour market.
“Even if private sector wages growth doesn’t exceed 1 per cent q/q in Q4, the likelihood that overall wages growth will remain persistent despite a higher cash rate is central to our expectation that there is very little prospect of the RBA cutting rates until well into 2024 at the earliest (absent a major negative global shock),” the ANZ economists concluded.
AGM season continues
In addition to the speech from Philip Lowe, Mr Gilbert also highlighted that this week will see a wave of annual general meetings hosted by ASX-listed companies.
“A common theme that emerged from earnings season in Australia and the US has been ‘forward guidance’, with those providing poor or limited guidance seeing their share prices punished,” he stated.
“These AGMs are an important watch for investors as Aussie AGMs give selected investors a chance to grill company directors on their strategies for the year ahead.”
Among the “big names” holding their AGMs during the week are Core Lithium, Evolution Mining, WiseTech Global, Fortescue Metals and Liontown Resources.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.