Australia c.bank scraps QE Feb 1, wait until November to hike rates: Reuters poll

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Two women walk next to the Reserve Bank of Australia headquarters in central Sydney, Australia February 6, 2018. REUTERS/Daniel Munoz

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BENGALURU, Jan 27 (Reuters) – Australia’s central bank will end its bond-buying program on Tuesday but is expected to wait until November before reacting to higher inflation with its first rate hike in over a decade, a Reuters poll showed.

The country’s underlying inflation, which rose at the fastest annual pace since 2014 in the December quarter, suggests the recent surge in price pressures was not as benign and temporary as policymakers thought.

While Governor Philip Lowe was still hinting last month that rate hikes were unlikely this year, money markets began pricing in a hike in the Reserve Bank of Australia’s (RBA) record-low interest rate of 0.10% as early as May, just two months away after a widely expected US Federal Reserve rate hike in March.

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Economists polled in a Reuters poll Jan. 18-25 put forward their rate hike expectations for the third straight month. However, most of the 34 respondents expect the RBA to take more time, with a median forecast for a 15 basis point move in November. Two economists are already expecting a rate hike in the second quarter, seven in the third quarter, eleven in the fourth quarter and 13 see the central bank as the first to get the job done next year.

Economists were less divided on when the central bank will end its bond-buying program, with 17 out of 22 of those who answered the question expecting an announcement at the next policy meeting on Feb. 1. Five others saw the end of the central bank’s program launched in May in response to the coronavirus pandemic.

“We expect them to end the QE programme, upgrade forecasts, acknowledge that the inflation target has been met and re-emphasize the focus on wages as a demand-side inflation signal,” Morgan Stanley economist Chris Read said of next week’s meeting Week .

“While they are not explicitly announcing short-term rate hikes, they will acknowledge the possibility. Our forecast is for the RBA to start in November 2022 – these (recent inflationary) pressures raise the risk that this could happen a few months earlier.”

The last time the central bank raised rates was more than a decade ago, in November 2010, when it raised rates to 4.75%.

An expected hike this November would be followed by a 25 basis point hike in the first quarter of next year and another 25 basis points in the June quarter, bringing the policy rate back to 0.75% where it was pre-pandemic.

Marcel Thieliant, chief economist for Japan, Australia and New Zealand at the consultancy Capital Economics, said in a note to clients that inflation data made a good case for a rate hike as early as May, but a general election made a hike unlikely at the time.

“The RBA has not changed its policy rate in an election month since it began announcing monthly policy decisions in 2008. And with wage growth set to remain below 3% for now, we expect the bank to wait until August.”

The survey found that inflation would reach the RBA’s 2-3% target range from the next quarter and into 2023, averaging 2.5% this year and 2.3% in 2023, while the economy is expected to expand by 4 .0% this year and 2.9% in 2023.

(More articles from Reuters Global Economic Survey: Read more)

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Reporting by Vivek Mishra; Survey by Devayani Sathyan and Prerana Bhat; Edited by Ross Finley and Tomasz Janowski

Our standards: The Thomson Reuters Trust Principles.

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