Central bank expected to adopt a wait-and-see stance amid inflation concerns
The Reserve Bank of Australia (RBA) will likely keep the cash rate unchanged in September, according to a bank economist, who cited the recent uptick in inflation as a key factor prompting the central bank’s cautious approach.
“After the August RBA cash rate cut, we’re not expecting a back-to-back cut in September - especially after a higher read for inflation in the latest monthly indicator for July,” said David Robertson (pictured top), chief economist at Bendigo Bank.
Attention is now turning to the quarterly inflation figures, due late next month, which will play a key role in determining when the RBA might next adjust the cash rate.
“The Reserve Bank wouldn’t have been surprised by the rise in CPI in the monthly numbers due to electricity rebates and other one-off factors, but core inflation was a little higher so the RBA will want to see the full third quarter data out on October 29 before cutting again,” Robertson said in Bendigo Bank’s latest Economic Update.
“Our next RBA rate cut is still forecast in November, but we are getting closer to the low in the easing cycle, so jobs data and export demand will be important in this timing, and whether the RBA need to keep cutting rates next year.”
RBA governor Michele Bullock has also warned that expected interest rate reductions may be delayed if current consumer spending patterns persist.
Robertson, meawhile, noted that the pace of monetary policy easing has slowed internationally. “The pace of central bank cuts elsewhere has eased as rates get closer to ‘neutral’,” he said.
“However the US Federal Reserve is now expected to cut rates later this month after weaker jobs data and after Federal chair Jerome Powell gave his clearest message yet that a cut is imminent, despite inflation trending higher.”
Australia’s latest GDP data showed the economy grew by 0.6% in the June quarter, with annual growth at 1.8%. “The data showed a healthy dose of household consumption, supported by the rebound in disposable income responding to RBA cuts and less of a drag from inflation, which aligns to our view that the private sector will increasingly take the reigns from public spending,” Robertson said.
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