RBA Preview: 25bps hike on tap as inflation picks up

investing.com:

Investing.com-- The Reserve Bank of Australia is widely expected to raise interest rates when it meets on Tuesday, following signs of a resurgence in inflation and some hawkish comments from central bank officials.

The RBA is expected to raise its target cash rate by 25 basis points to 4.35%, as stronger than expected third-quarter inflation data released in October saw a string of analysts adjusting their expectations. 

Australian banks ANZ and Westpac both brought forward their forecasts for a hike to November from December, while UBS and ING also expect a rate hike at the RBA’s November 7 meeting. 

This was accompanied by a warning from new RBA Governor Michele Bullock that inflation risks still persisted and that more rate hikes were likely needed, although Bullock also noted that the third-quarter inflation reading was only slightly above consensus.

But since then, stronger-than-expected retail sales data for the third quarter furthered the notion of a November hike, as it indicated that consumer spending showed little signs of cooling despite high interest rates. 

Australia’s jobs market also showed few signs of cooling, and was a major supporter of retail spending this year. The country’s participation rate recently hit a record high, while unemployment remained low. 

But while inflation rose in the third quarter, it beat expectations only by a small margin. This saw some analysts predict that the RBA’s decision to hike may be a close call.

“It is going to be a finely balanced decision and a decision to hold still can’t be ruled out entirely. An increase this month won’t be the outcome the RBA had hoped for. But given the strength of their rhetoric around upside surprises, I don’t think they will try to craft a