As the Fed continues to tighten, can the RBA afford a dovish pivot in October?

The long-held dovishness of the Reserve Bank of Australia (RBA) has certainly been no tight-lipped secret.

After it never should have done so in the first place, the RBA continued to repeat its now infamous expectation that interest rates will not be raised until 2024 for far too long. The RBA then lagged international counterparts such as the Federal Reserve (Fed) in finally raising rates (the Fed first raised rates in March 2022 versus the RBA in May 2022)—which is significant given that the Fed also got its policy settings, and their inflation consequences, very wrong.  

While the RBA has increased interest rates by 50bps in each of the last four months, taking the cash rate to 2.35 per cent, the minutes of its September monetary policy board meeting yet again reveal a dovish tilt. Namely the RBA noted: that members “discussed the argument around raising interest rates by either 25bps or 50 bps”; that monetary policy operates with a lag and is getting closer to normal settings; that…