Expected Stabilization of Interest Rates in Australia
The Reserve Bank of Australia is set to announce its decision on rates on June 18.
The major banks in Australia are forecasting that interest rates will remain unchanged as representatives convene at the Reserve Bank of Australia (RBA) meeting scheduled for June 18.
RBA members are currently engaged in a two-day meeting from June 17 onwards to deliberate on monetary policy and are expected to release an update on interest rates at 2:30 p.m.
Presently, the official interest rate in Australia stands at 4.35 percent, with several banks anticipating that a reduction is improbable until November.
Commonwealth Bank of Australia has stated its belief that the cash rate will remain unaltered at the June Board meeting, deeming it a “straightforward decision.”
Senior economist Belinda Allen explained this rationale, citing that the first quarter 2024 national accounts and labor market data mostly align with the RBA’s recent forecasts.
“The federal budget had a slightly greater expansionary effect than anticipated, but we do not envisage that it has altered the RBA’s evaluation of the economic outlook,” she remarked in an Economics Daily alert (pdf) on June 17.
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“The board is expected to emphasize that no options are off the table. Looking ahead, the second quarter 2024 Consumer Price Index data, due on July 31, just before the August board meeting, will be crucial, with the August meeting potentially significant,” she stated.
Additionally, ANZ Bank is also anticipating that interest rates will stay steady. In a research note dated June 17, ANZ economists mentioned, “We anticipate the cash rate to remain at 4.35 percent” during the June RBA meeting.
“Revisions upward in household consumption observed in the national accounts should prompt the Board to regard consumer spending as less feeble than previously assessed,” ANZ communicated in a research note to investors.
“Regarding inflation, we believe the post-meeting statement will acknowledge that recent cost of living measures were not factored into the RBA’s inflation projections released in May, though these measures are unlikely to significantly impact core inflation,” they added.
ANZ economists highlighted favorable news on U.S. inflation in the past week, with May CPI figures moderating and both May Producer Price Index and import price inflation declining month on month.
Consecutive improvements in inflation levels were observed in April, as per ANZ’s observations. Movements by the United States Federal Reserve can sometimes influence interest rate changes in Australia.
Moreover, Westpac Banking Corp Chief Economist Luci Ellis is projecting that a rate decrease in Australia is improbable before November.
“The expected path of disinflation moving forward makes a rate cut unlikely much earlier than November,” she remarked.
Ms. Ellis highlighted that the trimmed mean inflation gauge still exceeds the upper limit of the target range in the year leading to the March quarter.
She mentioned that closer attention will be paid to this gauge as transient factors influence the headline measure in the coming quarters.
“However, even with a further softening in trimmed mean inflation, it will take time to gather sufficient evidence to convince the Board that disinflation is firmly heading toward the 2 to 3 percent mark consistently,” she explained.
“If inflation remains elevated above the target range, this would be the primary factor causing the RBA to delay its initial rate cut.”
RBA Waiting On Consumer Price Index Data In July
NAB, on June 17, also remarked that it expects the RBA to maintain rates unchanged with minimal modifications to its guidance of not ruling anything in or out.
“Governor Bullock made it clear that the RBA is awaiting the second-quarter Consumer Price Index data on July 31 to update their forecasts and risk assessment,” NAB economists disclosed.
“Although Governor Bullock acknowledges two-sided risks in the RBA’s inflation forecasts, the threshold for a rate hike remains high due to perceived tightness in policy, subdued economic activity, and signs of easing in the labor market.”
In the meantime, AMP chief economist Shane Oliver remarked on June 13 that rate cuts might still be around six months away, with a possibility that rate cuts might not materialize until early next year.
He pointed out that Australian employment growth has cooled, and labor underutilization has marginally increased, yet the labor market continues to exhibit relative tightness.
