Geopolitical tensions and tariffs linger, yet investors remain focused on an unexpected upswing
Bendigo Bank’s chief economist has cautioned that while financial markets still expect an interest rate cut on Melbourne Cup Day, recent economic data have cast doubt on the timing of the Reserve Bank of Australia’s next move.
In the bank’s October economic update, chief economist David Robertson (pictured) said Tuesday’s decision to leave the cash rate unchanged came as no surprise. However, he noted “a question mark now hovers” over a Cup Day rate cut in November.
“Our forecasts are unchanged for a ‘shallow’ RBA easing cycle back to a more neutral rate around 3.25%, but the timing of the next cut is under question,” Robertson said.
He pointed to a jump in the August inflation indicator and sharp rises in other categories as complicating factors. “The full quarterly CPI numbers out on October 29 will be the key event to verify this timing. So barring a significant jump in core inflation, the easing cycle should continue. But it’s a complex environment,” he said, adding that the RBA governor had warned “inflation may be persistent.”
Household spending and jobs buoy economy
The Reserve Bank of Australia kept the cash rate steady at 3.6% in September, in line with market expectations. Economists at the Big Four banks had anticipated the decision, which followed a 25-basis-point cut in August. Inflation rose to a 12-month high during the month, strengthening the case for a cautious, data-driven approach by the Monetary Policy Board.
Attention has now shifted to the RBA’s November meeting, with major banks divided on whether another cut will be delivered.
Robertson said Australia’s economy is running ahead of RBA forecasts, underpinned by household spending and a resilient labour market.
“Trend data shows conditions for employment are slowly easing, but the RBA still expects demand for labour to remain intact and the unemployment rate not to rise at all from here,” he said.
Robertson noted Bendigo Bank’s forecast is less optimistic. The jobless rate remains around 4.25%, but upcoming data due on October 16 could prove decisive.
Markets push higher despite global risks
Turning to international conditions, Robertson said uncertainty continues to weigh on the global outlook, though not all risks are playing out negatively.
“Tariffs remain problematic but so far more extreme scenarios to the downside haven’t emerged, as initially feared,” he said. “Stock markets have again set fresh record highs in a wide range of locations still looking through short-term impacts of tariffs and geopolitical tensions to the medium-term upswing promised by AI and other emerging technologies.”
Robertson said a weaker US dollar was likely as the Federal Reserve moves to cut interest rates despite rising inflation. “This may also be challenging for bonds, but for now markets are marching on,” he said.
