Reserve Bank of Australia (RBA) minutes sent fear through the market today as it halved early trading gains having been up over 1%.
The ASX 200 had gained 33.40 points or 0.48% to 7,059.90 at 3.40pm, 20 minutes before maerket close. Over the last five days, the index has gained 1.29%, but is virtually unchanged over the last year to date.
The top performing stocks in this index are Cromwell Property Group Ltd and TPG Telecom Ltd (ASX:TPM) up 10.42% and 5.02% respectively.
Citi described today’s RBA as “hawkish” and that all eyes are now on this week's jobs data and next week's CPI data.
"We maintain our view for one more hike in December on the expectation of a strong Q3 wage cost index result that will diverge further from underlying productivity," Citi senior economist, Faraz Syed said.
“However, if next week's CPI data forces the Bank to upwardly revise its inflation forecast, then the risk is a rate hike in November."
Michele Bullock’s first Policy Board Statement noted that the noted that “the Board has a low tolerance for a slower return of inflation to target than currently expected”.
Higher services inflation is the likely catalyst for the tone. Not only did oil continue to rise, but various discretionary services items such as recreation and culture also nudged higher.
"It was noted that the rise in retail petrol prices would continue to underpin inflation over coming months and could influence households’ inflation expectations," the minutes say.
J.P. Morgan Australia chief economist, Ben Jarman also noted the hawkish tone.
"During the extended pause, the case for further tightening has been framed around more persistent inflation.”
Jarman said, “it's hard to see why the board would be feeling noticeably more twitchy now on the basis of very recent data, but notes that the case for another hike would be framed around SoMP forecast revisions, which are due at the November meeting.
"We have expected upward revisions to growth after the 2Q data, which imply a downward bias to unemployment, and so upward bias to inflation forecasts for 2024/25. In a relatively close call, we still expect a hike at the November meeting, though this week’s labour market data will be important, as will CPI next week."
What did the RBA minutes say?
"In reaching their decision, members noted that some further tightening of policy may be required should inflation prove more persistent than expected," the minutes say.
"The Board has a low tolerance for a slower return of inflation to target than currently expected.
"Whether or not a further increase in interest rates is required would, therefore, depend on the incoming data and how these alter the economic outlook and the evolving assessment of risks.
"Members reaffirmed their determination to return inflation to target within a reasonable timeframe and their willingness to do what is necessary to achieve that outcome."
"Members also considered the implications of developments in asset prices for monetary policy.
"They noted that while rising housing prices alone would not warrant tighter policy, the associated rise in household wealth could support consumption by more than currently assumed, especially if housing turnover were to pick up more quickly than expected.
"The rise in housing prices could also be a signal that the current policy stance was not as restrictive as had been assumed, although there was other evidence that monetary conditions were tight.
"Similarly, members observed that developments in the exchange rate over prior months had eased monetary conditions, though only at the margin."
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