1 Aug 2023
The Reserve Bank of Australia (RBA) Board has again decided to leave the cash rate unchanged at 4.10% at its August meeting.
August 2023 - Article provided by PSK's Chief Investment Officer Chris Lioutas.
The meeting was considered a live one in that the Board members had enough reasons to either leave rates unchanged (e.g., recent lower inflation print, lagged effect of previous rate rises) or lift rates further (e.g., inflation still well above target, labour markets too tight).
There were some subtle but important differences in this statement versus the statement post the July decision. These included:
- Distinguishing the trajectory in goods inflation versus services inflation – ie. goods price inflation has eased considerably whilst the prices of many services are rising briskly, with rent inflation also high
- Updated forecasts for inflation (3.25% by end of 2024, back in 2-3% range in late 2025), economic growth (1.75% over 2024, a little above 2% over 2025), and unemployment (rise from 3.5% to 4.5% by late next year)
- That below trend economic growth will continue for some time
- Spelt out that household consumption growth is weak as is dwelling investment
- Labour market conditions remain very tight but have eased a little with firms reporting that labour shortages have lessened
- Medium term inflation expectations have been consistent with the inflation target (2-3%), stressing the importance of this remaining the case
The Board signed off with the usual commitment to returning inflation to target but did leave the door open for further rate rises.
Up until recently, market expectations were for two more rate rises before the RBA hit peak rates. The next meeting will be Philip Lowe’s last meeting as governor with Michelle Bullock taking the lead on September 18. That sort of timeline may play into Lowe doing one more rate rise as a departing governor, and/or may provide some room for Bullock to execute a rate rise at her first meeting as governor in October to stamp her authority as a tough-on-inflation leader.
Following their announcement, Australian equities moved higher, the AUD/USD fell, and bond prices rose (ie. yields lower).
As always, if you have any questions or your personal circumstances have changed please do not hesitate to contact your financial adviser
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