4 Jul 2023
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The Reserve Bank of Australia (RBA) Board has decided to leave the cash rate unchanged at 4.10% at its July meeting.
July 2023 - Article provided by PSK's Chief Investment Officer Chris Lioutas.
Leading into the meeting, consensus clearly favoured a hold decision following the May inflation print which came in much lower than expected, in contrast to the RBA’s more hawkish rhetoric over the last few months regarding the need for higher rates ahead.
There was effectively no change from their statement in June, absent the usual wording they’ve been using this year following a pause decision – ie. reinforcing that interest rates have risen a lot since May last year (ie. heavy lifting mostly done); and the decision to hold rates steady gives them more time to assess the effect of those rate rises (ie. the lagged effect in which monetary policy operates).
The RBA still appears likely to take rates higher from here but is doing so at a slower pace (ie. including pauses), to give themselves more time to assess changing data over the course of the next two quarters. Contractionary or tighter conditions will be required until inflation falls further from here given current levels remain elevated. Periods of sustained higher inflation are risky to inflation becoming more entrenched, and generally punish the poor and middle-class as cost-of-living pressures take effect.
Hence, the RBA is managing a very tough balancing act of maintaining contractionary enough settings to bring inflation under control whilst trying not to push the economy into a deeper recession than may be required.
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
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.
