RBA Policy Preview: Dovish Signals Could Harm

Most economists expect the Reserve Bank of Australia to decide one more big rate hike on Tuesday before shifting to slower moves in the near future. With a majority of Australian mortgages on adjustable rates, policymakers could issue a decision that is weighing inflation control and currency support against a quick hit to the country’s economic growth.

The latest inflation data showed that consumer prices in Australia eased to 6.8% in August from a record high of 7% in July on a year-to-date basis. The RBA has already hiked the cash rate by an aggregate of 225 basis points to a seven-year high of 2.35%.

Meanwhile, the RBNZ is on track for its fifth straight half-point increase on Wednesday, and some economists expect it will need to keep tightening well into next year.

The RBA is expected to raise the cash rate by 50 basis points to combat inflation but the Australian dollar could be subject to pressure if policymakers happen to prefer to resort to any dovish signals given that they said last time around that the central bank was looking for opportunities to slow the pace of rate hikes at some point.