Synopsis:

Credit Agricole anticipates a rate increase at the forthcoming Reserve Bank of Australia (RBA) meeting, citing surging inflation, a robust labor market, climbing house prices, and resilient consumer spending. The weakening Australian dollar, contributing to rising imported inflation, further bolsters the case for a rate hike of 25 basis points to 4.35%.

Key Points:

• Expectations for a Rate Hike: A consensus among economists, including Credit Agricole, predicts a 25 basis point increase, although the market seems less certain, pricing in the probability of such a hike at about 60%.

• Political Influence Concerns: Market participants are wary of potential influence from the government on newly appointed RBA Governor Michele Bullock and the RBA Board, as reflected in recent statements by the Australian Treasurer downplaying the Q3 inflation data.

• Credibility on the Line: The upcoming RBA meeting is not just about policy adjustments but also a test of the central bank's credibility. A rate hike is now viewed as necessary to maintain market confidence.

• Potential Currency Impact: Failure to raise rates or at least adopt a sufficiently hawkish stance could result in a depreciation of the AUD, according to Credit Agricole's analysis.

Conclusion:

Credit Agricole underscores the importance of the upcoming RBA meeting as a pivotal moment for both monetary policy and the institution's reputation. With expectations set for a 25 basis point increase in the cash rate, the decision will serve as a barometer of the central bank's determination to tackle inflationary pressures and maintain its policy integrity. Any deviation from this anticipated course may have significant implications for the Australian dollar's value.