Global central banks are gaining confidence in the fight against inflation even as downside risks for growth dissipate. Balancing these risks will require a lengthy period of on hold policy to mid-2024 and a cautious approach to easing to end-2025.

Global central banks are gaining confidence in the fight against inflation as uncertainty lingers over the growth outlook.

Inflation and related risks remain front of mind for policy makers as the growth outlook becomes increasingly uncertain.

Inflation and the response function of policy makers remain front of mind for market participants here and abroad. In the US, there are promising signs of disinflation and softening wage momentum, but to call an end to the global rate cycle, these trends must persist and broaden across the world.

Recent data has highlighted the tension between the Australian economy’s robust current momentum and the sharp deterioration expected in 2023.

We would like to wish all our listeners a Merry Christmas. Market Outlook in conversation will return in February 2023.

Despite a very strong and broad-based Q3 CPI print, the RBA limited their November rate increase to 25bps. We expect inflation to remain a pressing concern for Australia, requiring the RBA to continue hiking to 3.85% by May 2023 and then remain on hold until 2024. Of particular note this month is the profound weakness in Westpac-MI consumer sentiment, with the November outcome below the GFC low.

The RBA surprised in October, raising the cash rate by 25bps instead of 50bps as expected. The Australian dollar has fallen as a result, with other global central banks continuing to deliver to hawkish expectations. In this edition, we assess the outlook for the RBA, global markets and the consequences for Australia’s economy.

With monetary policy the developed world over now at or near neutral levels, market debate is increasingly turning to how long policy will need to remain contractionary and the cost.

The persistence of the global inflation threat, the required policy response and the implications for economic activity have continued to be debated by market participants and authorities this month.

Global recession fears continue to grow as the costs related to geopolitical uncertainty, rapid inflation and rising interest rates are felt.