6 Aug 2024
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The Reserve Bank of Australia (RBA) Board has decided to leave the cash rate unchanged at 4.35% at its August meeting.
August 2024 - Article provided by PSK's Chief Investment Officer Chris Lioutas.
The statement accompanying this decision was purposefully and decidedly hawkish. The language around the fight to bring inflation down into their target band, was significantly more stiff and tough. This was required given recent trends in inflation data and their previously softer rhetoric.
There was a lot to unpack in the statement, but the key take-away points for you to understand are:
- A callout and focus on their preferred inflation measure - i.e. the trimmed mean - which is still well above the midpoint of their target range (2-3%) with recent prints proving its persistence.
- Changes to their May forecasts on the inflation outlook - i.e. expect inflation to be in the target range by late 2025 (versus mid-2025) - noting that the gap between demand and supply in the economy is larger than they previously expected.
- A callout regarding the "substantial uncertainty of these forecasts" and that current data seems to suggest upside risks to inflation - specifically wages growth remaining above productivity growth.
- Subtle changes to the overseas outlook with specific mention of the softening in the Chinese economy which has been reflected in commodity prices and that some central banks have eased policy.
- A subtle submission they have failed in meeting their inflation target over the medium term.
- Quite stiff language on inflation remaining too high, being vigilant to upside risks to inflation, the board isn't ruling anything in or out, and that they will do what is necessary to achieve their required outcome.
Effectively, the board made it clear monetary policy will need to remain restrictive (i.e. maintaining higher rates) for some time in order to meet their objectives.
Following the announcement, Australian equities rose, the AUD/USD rose slightly, and Australian bond prices were relatively flat. We think investors breathed a sigh of relief given no rate rise and the focus on global markets over the last few days.
As always, if you have any questions or your personal circumstances have changed please do not hesitate to contact your financial adviser
General Advice Warning - Any advice included in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation or needs.
