The Australian sharemarket is bracing for a cautious start to the week, with investors anticipating a fourth interest rate rise this year from the Reserve Bank of Australia. Futures indicate the S&P/ASX 200 Index will open flat, following its fourth consecutive week of losses. The index has shed 4.5 per cent in September, and has now wiped out all of this year’s gains. This contrasts with Wall Street, where US benchmarks rose on Friday, buoyed by the artificial intelligence sector, declining oil prices, and easing US bond yields.
All attention locally will be on the RBA’s monetary policy decision on Tuesday. Economists and markets are all but certain of a quarter-percentage-point increase to the cash rate, taking it to a 15-year high of 4.6 per cent. Financial markets are fully pricing in this increase, and imply a strong chance of another early next year, potentially pushing the cash rate above 5 per cent – a level not seen since the 2008 global financial crisis. While State Street Investment economist Krishna Bhimavarapu suggests a path towards a 5 per cent terminal cash rate, most economists expect Tuesday’s move to conclude the current tightening cycle.
This shift in outlook comes as surging oil prices and fresh data indicate a heating economy and rising inflation, prompting RBA officials to issue strong warnings. Globally, the RBA has already led developed nations with three consecutive rate hikes this year, with other central banks, including the US Federal Reserve, now following suit. ANZ head of Australian economics Adam Boyton cautioned that this coordinated global tightening, combined with higher energy prices and rising bond yields, increasingly poses risks to global growth. Crucially, local August inflation data, due Wednesday, will be released a day after the cash rate decision.
