October Cash Rate Preview: Will the RBA go 25 or 50 basis points?

This remains the consensus across most major bank economists, with another 50 basis point increase anticipated to lift the cash rate to 2.85%.

If forecasts are correct, the 275 basis points of tightening to the cash rate will see it reach its highest print since May 2013, when the rate reached 2.75%. 

Following May's decision to lift the cash rate for the first time since November 2010, RBA Governor Dr Philip Lowe signalled 25 basis points as the standard amount the RBA moves the cash rate.

The RBA has since then made four-consecutive 50 basis point increases, with the potential move on Tuesday being the fifth.  

Westpac Chief Economist Bill Evans expects the RBA to lift the cash rate by 50 basis points.

“In light of the rise in global rates, it seems sensible to push the cash rate to 2.85% in October, taking it comfortably above the neutral benchmark before scaling back the pace of rate increases,” Mr Evans said. 

“Rate hikes are expected to continue out to February 2023 as the December inflation report is likely to show consumer prices lifting strong in the December quarter.” 

CommBank economists lie at odds with other major banks, anticipating the RBA to slow the pace of tightening and lifting the cash rate by 25 basis points, taking the rate to 2.60%. 

AMP Chief Economist Shane Oliver said the RBA should scale back to a 25 basis point increase at its October meeting, but it’s starting to feel like another 0.50%.

“A 0.40% hike might be a nice compromise,” Mr Oliver said.

Monthly inflation figures 'will not' impact RBA's October decision 

With the ABS releasing monthly inflation figures as a further guide to inflation in the economy, Reserve Bank Deputy Governor Michelle Bullock said the figures won’t have monetary policy implications for October given they do not account for the full basket of goods.

"What I would say is that our forecasts for inflation are to peak at about 7.75% to 8.0% towards the end and early into next year, so those are the numbers we’re currently working with," Ms Bullock said.

CommBank economists Gareth Aird and Stephen Wu said the data is likely to be welcomed by the RBA behind closed doors, having come in below expectations.

"The RBA’s expectation for inflation to peak at 7.75% to 8% implies quarterly increases of 1.8% in CPI over the next two quarters," the economists said. 

Eyes will now turn to ABS data released across the next few months as the fuel excise has now returned in full. 

"Petrol price moves have an immediate impact on budgets and are often seen as a bellwether for wider inflation," Westpac Chief Economist Bill Evans said.

See Also: When will interest rate rises stop?

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