By James Glynn


SYDNEY--The Reserve Bank of Australia is widely expected to leave its official cash rate on hold for a fourth month at its policy meeting on Tuesday, the first to be presided over by its recently-appointed Governor, Michele Bullock.

But even as the OCR is again held at 4.10%, the RBA is unlikely to telegraph to financial markets that it is becoming relaxed about the medium-term inflation outlook, according to economists.

"The RBA is expected to retain its tightening bias and be alert to the inflation and wages data over the final months of 2023," said Stephen Halmarick, chief economist at the Commonwealth Bank of Australia.

"But given the recent mixed data flow and our view that inflation will trend towards the 2%-3% target range in 2024, we hold to the view that the hurdle to another rate hike is high," he added.

The policy meeting will be mostly about style, rather than substance, with markets looking to see if Bullock introduces new themes into the RBA's messaging.

Bullock replaced Philip Lowe, who ended a seven-year term as Governor in mid-September.

Bullock is faced with an immediate problem in the shape of rising gasoline costs, with economists looking to see if she and the board feel this is a renewed threat to the inflation environment, or rather that it will act to put a brake on economic activity which is already slowing quickly.

Prashant Newnaha, interest rates strategist at TD Securities, said there is the prospect of a further interest rate increase before the year's end if higher gasoline prices prompt the RBA to raise its inflation forecasts next month.

In minutes of the last board meeting, the RBA indicated that it is watching the rise in gasoline prices, saying that it was evidence that the expected fall in inflation over the next year "could be uneven."

The annual rate of inflation snapped a recent decline and rose to 5.2% in August from 4.9% in July, largely due to costlier gasoline.

Recent data has shown that the economy is standing up reasonably well to the 400-basis-point increase in the OCR since May 2022, with second-quarter GDP growth beating expectations.

For some economists it suggests that the RBA won't be in a position to cut interest rates until the end of 2024.

Chief Economist at Goldman Sachs, Andrew Boak, this week moved his forecast for the timing of interest rate cuts to the fourth quarter of 2024 from the third quarter, citing the economy's general strength.

Boak said that not all of the increase in interest rates over the last year has reached those paying off their home loans, with banks' discounting proving to be a moderating factor as loans move from ultra-low fixed interest rates to much higher variable rates.

"The economy appears to be navigating the fixed-rate mortgage roll-off in relatively good shape, with strong retail bank competition and mortgage discounts meaning only around 340 basis points of the RBA's 400 basis points in rate hikes have been passed to new mortgage rates," he said.

Write to James Glynn at james.glynn@wsj.com


(END) Dow Jones Newswires

09-29-23 0052ET