RBA hikes cash rate as Australia amid regional inflation pariahs

RBA governor Philip Lowe has plenty to ponder in 2023

The Reserve Bank of Australia has raised the cash rate by 25 basis points to 3.35 per cent, with the nation's major banks expected to follow. However, a ratings agency has highlighted that Australia is one of three outliers in the Asia-Pacific region with its current inflation trajectory.

Announcing its first 2023 cash rate decision on Tuesday, the Reserve Bank noted that in the last reporting year consumer price index (CPI) inflation has risen 7.8 per cent, the highest increase since 1990.

Ratings agency S&P Global Ratings identified Australia, New Zealand and the Philippines as three outliers in its 'mixed bag' of inflation in the Asia Pacific, with the three with elevated core inflation in recent months 'fueling expectations of further policy rate increases.' Chief Economist Louis Kuijs said on Tuesday:

"The coming six months are likely going to show significant differentiation in central bank policy moves, depending on the domestic inflation trajectory, with some countries raising rates as others stay pat."

The RBA says it expects Australian inflation to decline this year due to global factors and slower growth in domestic demand.

S&P believe Chinese consumer inflation will remain moderate but does not expect the People's Bank of China to raise their policy rate this year.

For Australia, ratings agency Moody's were optimistic that a Chinese government policy decision on international students would assist Australia's university sector and its impact on spending in Australia:

"The reopening of Chinaʼs borders should see overseas arrivals surge this year. This is particularly true given recent announcements that international tertiary qualications will only be recognised in China if they have been completed in person rather than online. This will prompt many existing and future Chinese students to make the trip to Oz."

S&P expects little to no cash rate increases in Korea, Indonesia or Taiwan due to a lower pace of sequential core inflation.

The cash rate news comes as another ratings agency, Moody's, reviewed Australia's trade data noting a falling trade surplus by $1.3 billion to $12.2 billion. The fall has been driven in part by a fall in rural exports, particularly cereal grain sailes, down 6.4 per cent.