Expected scenario: Will the RBI raise the pace of tightening again?

The expected scenario for the decisions of the Reserve Bank of Australia

Investors in global markets, especially the forex market, are awaiting the release of the interest decision in Australia, which is scheduled to be announced by the Reserve Bank of Australia tomorrow at 03:30 am GMT, as the monetary policy decision of the Reserve Bank of Australia always affects the trading of the Australian dollar against other currencies.

The Reserve Bank of Australia has raised interest rates in all of its six meetings since May, but it was the first to slow the pace of monetary tightening, as it only raised interest rates by 25 basis points at its meeting on the first of October, after five consecutive hikes of 50 basis points..

It is widely expected that the Monetary Policy Committee of the Reserve Bank of Australia will raise interest rates for the seventh time tomorrow, and there are many questions among investors about the amount of tightening of the bank’s monetary policy at tomorrow’s meeting, and the following are the main factors that will affect the decision of policy makers in the Australian Reserve The expected scenarios for the decision and its consequences:

First: The current conditions in the Australian economy:

The Reserve Bank of Australia maintained a string of monetary tightening since May to control high inflation in Australia, but the central bank was forced to slow the pace of tightening at its previous meeting in light of the surge in mortgage costs, as homeowners began to face major challenges in meeting the payment of their home loans.

On the other hand, Australia continued to record very high inflation rates, as the Australian Bureau of Statistics data showed that the Consumer Price Index rose by 1.8% during the third quarter of the year compared to the second quarter, while it rose by 7.3% on an annual basis during the same quarter.

The revised CPI – which moderates the average price increase – rose by 6.1% in the third quarter on an annual basis, the highest reading the index has ever recorded, which makes a strong tightening by the Australian Reserve urgently needed.

At the same time, labor market data in Australia showed that the strong monetary tightening had a significant impact on the level of employment, as the month of September witnessed a sharp slowdown in the volume of employment, as the economy added only 0.9 thousand jobs, down from 36.3 thousand jobs in August, which Limits the ability of the Australian Reserve to raise interest rates at a strong pace again.

Reserve Bank of Australia Governor Philip Lowe said in the press conference of the previous bank meeting that wage growth and the effect of savings on the escalation of the risks of high inflation are all still surrounded by a high degree of uncertainty.

The quarterly economic forecasts released by the Reserve Bank of Australia showed that the central bank estimates in its August update that inflation will peak below 8% later this year.

For its part, the fiscal constraints imposed by Australian Treasurer Jim Chalmers in the budget announced last week – and aimed at avoiding increased demand – supported the possibility of the Reserve of Australia raising interest rates by only 25 basis points.

Second: The expectations of the most prominent investment banks for the decision of the Australian Reserve:

Senior analysts at US Goldman Sachs expect that the Australian Reserve will be satisfied with raising interest rates by another 25 basis points at tomorrow’s meeting, which was supported by senior analysts of the Commonwealth Bank of Australia Westpac and Joe Masters.

On the other hand, another group of Australian Commonwealth Bank economists sees a 40% chance that the RBA will raise rates by 50 basis points to curb rising inflation.

Third: The expected decisions of the Reserve Bank of Australia tomorrow:

The first, expected and most likely scenario, is that the Australian Reserve will only raise the interest rate by another 25 basis points, to reduce the severe side effects on the Australian economy, especially in light of the aggravation of the mortgage repayment crisis, from which more than 30% of homeowners in Australia are suffering. In addition to the sharp decline in the level of employment in the Australian labor market.

But the Australian Reserve’s contentment to raise interest rates at this weak pace may not be enough to control inflation, as it will most likely cause a significant decline in the price of the Australian dollar in the currency market.

The second less likely scenario is for the Reserve Bank of Australia to raise rates by 50 basis points to control record inflation that the country is still experiencing, but a sudden increase in the pace of tightening again will increase the risks of an economic recession, although it may give the Australian dollar Some support and bullish momentum in the currency market.

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