Bond yields jumped as investors ramped up bets the Reserve Bank will lift interest rates further to restrain inflation.
Inflation readings in Australia and New Zealand topped expectations on Wednesday, fortifying the case for the countries’ central banks to lift interest rates to contain a sharp rise in the cost of living.
“Today’s larger-than-expected gain in consumer prices during the December quarter affirms the likelihood that the RBA will press ahead with a further interest rate increase at the February policy meeting,” said David Bassanese, chief economist at BetaShares.He expects the December quarter consumer price report to mark the peak in inflation. “It will be hard for the RBA not to lift interest rates again,” he said.
Investors are now nearly fully priced for a ninth straight rate rise at the RBA’s policy meeting on February 7. Interbank futures imply a 97 per cent probability of a quarter point increase to 3.35 per cent, up from 70 per cent before the inflation report. They ascribe a tiny 3 per cent chance that the central bank will sit pat, down from 30 per cent earlier in the day.The RBA has lifted the cash rate by 3 percentage points since May last year in the fastest tightening in a generation.
Of particular importance is the elevated spending on discretionary items such as travel and leisure at the end of the year. She does not expect interest rate cuts before 2024. “We need much clearer signs of core inflation on a downward trajectory, and it’s a bit hard now to be super confident.”In New Zealand, consumer inflation outpaced expectations and stayed at a record high as price increases touched everything from house building to food and flights.
Still, the reading reinforced the case for more interest rate increases in New Zealand, albeit at a slower pace.
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