RBA June Interest Rate Decision Preview: How Does RBA Balance Inflation Control with Economic Growth?
The Reserve Bank of Australia(RBA) will likely hold its fifth consecutive meeting on Tuesday, keeping its key policy rate unchanged. Most economists expect the RBA to cut interest rates for the first time in the last quarter of the year.
With the inflation rate remaining above the central bank's target of 2-3% since the end of 2021, and the unemployment rate dropping to 4%, the majority opine that the likelihood of an early rate cut is slim. The central bank has recently indicated that an interest rate hike may be necessary if the inflation rate continues to stay high.
1. Inflation Remains Stubbornly High
Data Surpasses Expectations: According to the latest figures released by the Australian Bureau of Statistics (ABS) on May 29, the Consumer Price Index (CPI) for April rose by 3.6% year-on-year, exceeding the previous month's figure of 3.5% and marking a two-month rebound that surpassed analysts' general forecast of 3.4%. The largest price increases were in housing (+4.9%), food and non-alcoholic beverages (+3.8%), alcohol and tobacco (+6.5%), and transport (+4.2%). The central bank has recently indicated that an interest rate hike may be necessary if the inflation rate continues to persist at high levels.
Real Estate Market Remains Hot: Data from CoreLogic indicates that property prices rose by 0.8 percent in May, representing the most significant monthly rise since October of the previous year. This uptick also signifies the 16th consecutive month of price growth, as the demand for residential real estate continues to outpace the scant supply nationwide. Tim Lawless of CoreLogic anticipates that housing values will face continued upward pressure as long as demand exceeds supply.
2. Strong Labor Market:
The unemployment rate in Australia fell to 4% in May, with the employment numbers rising by approximately 40,000 and the number of unemployed decreasing by 9,000. Due to the increase in employment and the decline in unemployment, the ratio of employed persons to the population remained at 64.1%, and the labor force participation rate held steady at 66.8%, indicating that the labor market remains relatively tight. Economists predict that the unemployment rate will grow by the end of the calendar year.
3. Lack of Consumer Confidence：
Australian retail trade grew by 0.1% in April, rebounding from the previous month's -0.4% but still below the market consensus expectation of 0.2%. The main reason is that consumer spending continues to face pressures from sticky inflation and concerns over persistently high long-term interest rates.
"The upshot is that consumption growth will probably remain weak into the second half of the year, which should help to lower inflation further," said Marcel Thieliant, head of Asia-Pacific economics at Capital Economics.
"While we expect the RBA to only start cutting interest rates at the beginning of next year, the prolonged weakness in consumption opens the door for an earlier rate cut."
4. Weak Economic Growth：
Due to tightening household budgets, squeezed corporate profits, and weak trade conditions exerting pressure on the economy, Australia's GDP growth in the first three months of 2024 almost came to a standstill.
According to data from the Australian Bureau of Statistics, Australia's GDP grew by just 0.1% in the March quarter, below the expected 0.2%, and a quarterly growth of 0.2% in the last quarter of the previous year. The annual growth rate has decreased from 1.5% in December to 1.1%, which is the lowest level since the pandemic.
5. Analyst Views Towards Rate Cuts Possibility：
"We expect the RBA to comfortably maintain its somewhat hawkish hold stance," said Carl Ang, a Singapore-based fixed income analyst at MFS Investment. "Looking ahead, we think RBA rate cuts from early 2025 onwards strikes the balance between supporting growth and controlling inflation, thus helping mitigate the risk of recession.”
Expectations from 'Big Four'：Among the major local banks, CBA, NAB, and Westpac expect interest rates to remain unchanged throughout the third quarter. All three banks are forecasting a 25 basis point cut in the fourth quarter. ANZ predicts that the first cut will not occur until February.
Adam Boyton, an analyst at ANZ, noted that the "Big Four" banks have been cautioning that the start of the easing cycle could be later than previously expected, which may pose risks.
"It's not that monetary policy isn't working. It is. The economy has clearly slowed, particularly across private final demand. It's for this reason that we think a rate hike remains unlikely," Boyton said.
Source: Bloomberg, Reuters, ABC News, The Guardian, Savings
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
Read more
Comment
Sign in to post a comment
Moomoo News Official Account
Australian stock market news that is available at your fingertips
3730Followers
6Following
106KVisitors
Follow