(Bloomberg) -- Australia’s central bank is set to resume a pause in interest-rate increases as latest data pointing to slower home-price growth and inflation suggest previous tightening is gaining traction.

The Reserve Bank will keep its cash rate at a 12-year high of 4.35% on Tuesday, most economists predict, after delivering a protective hike last month to ensure inflation remains on track to return to target. The RBA has stood pat at all other meetings in the second half of this year.

RBA Governor Michele Bullock, who has adopted a hawkish tone since taking over in mid-September, is likely to maintain that stance. She has warned that while inflation eased to the current level of about 5% quite quickly, the next leg to the 2%-3% target is likely to be more drawn out.

“The board does not want to tighten policy further,” but will if it needs to, said Gareth Aird at Commonwealth Bank of Australia. “For that to happen, there must be a clear signal in the domestic economic data that the policy rate is not sufficiently restrictive to bring inflation back to target.” 

Australian policymakers have been more cautious than their offshore peers, trailing cumulative tightening in the US and New Zealand by about one percentage point. As a result, the RBA is still fine-tuning its position whereas the Federal Reserve, which went harder earlier, has seen inflation fall faster.

Underlining that, markets are pricing cuts from the Fed next year, whereas there remain bets on tightening by the RBA.

Swaps traders wager there’s a 40% chance Australia will hike its key rate again by mid-next year, a contrast to the Fed and European Central Bank that are expected to have begun an easing cycle by then. Markets are assigning roughly 50% odds that New Zealand and the UK will also be easing policy by mid-2024.

In tightening at just her second meeting on Nov. 7, Bullock also burnished her inflation-fighting credentials. She stuck with a hawkish stance at a forum in Hong Kong last Tuesday, voicing concern about emerging second-round effects of inflation in Australia. 

The next day, New Zealand warned it might have to resume raising rates if inflation persists. That’s despite its rapid 525 basis points of tightening and signals in recent months it had likely reached the terminal rate.

Australia’s concerns were allayed somewhat last week when inflation for October — the first reading of the fourth quarter — eased more than expected, to 4.9% from 5.6%. That was followed by November house-price gains slowing and a gloomier outlook that may reduce the so-called wealth effect for households.

Separate data on Monday showed job ads dropped for a third straight month in November to be down nearly 17% from a year ago. The result “highlights that the labor market is cooling, and points to a further lift in the unemployment rate,” said Madeline Dunk, an economist at ANZ Banking Group Ltd. 

Deutsche Bank AG, which has been calling a December hike for some time, said in a Nov. 29 note that while it was sticking with the view, it now had “less conviction.” It noted slower monthly inflation was due to cheaper petrol and government aid restraining rent rises, meaning underlying pressures remain.

Supporting Deutsche’s case, government data on Monday showed third-quarter inventories, which feed into gross domestic product data, surprisingly rose 1.2%. Wages and salaries advanced 2.7% in the quarter to be up 9.7% from the year-ago period. Home loan values also jumped 5.4%, exceeding forecasts for a 1.1% rise. 

“Our strong conviction remains that the RBA cash rate needs to be higher than it is now,” Deutsche’s Phil Odonaghoe said in the note. “If the RBA proves us wrong and does pause in December, we will simply shift our hike call back to February.”

Australia’s central bank doesn’t meet in January, and in the following month it will introduce a new system.

Starting February, the meeting will begin the day before the decision, the statement will be signed by the board rather than just the governor, updated staff forecasts will be released simultaneously and Bullock will hold a post-meeting press conference. RBA meetings will also be reduced starting 2024 to eight from 11 per year.

--With assistance from Tomoko Sato and Matthew Burgess.

(Adds Monday’s data, economist’s comment.)

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