RBA interest rates: Live updates from the Reserve Bank of Australia’s August board meeting
What a difference a few days can make, eh?
This time last week, homeowners were starring squarely down the barrel of another interest rate rise — the first since November last year. Listen carefully and you could almost hear the turning of the screws.
The tone of Reserve Bank governor Michele Bullock had changed over the past few months and the frustration had been clear — inflation had come down from its peak of 7.8 per cent in late 2022 but was proving more difficult than first expected to corral back within the central bank’s 2 to 3 per cent target range.
Then came last Wednesday’s welcome news that the RBA’s preferred measure of rising prices — the consumer price index’s trimmed mean — had fallen. Only slightly but enough for experts to say the board could ease the finger off the trigger.
Two days later came the release of US data showing an unexpected jump in unemployment to a near three-year high of 4.3 per cent and — along with it — fears of a dreaded hard economic landing and (sharp intake of breath) a recession at the epicentre of the global economy.
Then, just as the RBA was warming up the sausage rolls yesterday for a mid-morning snack on day one of its two-day meeting came the local share market’s reaction. Investors bolted for the door faster than Freeloader Freddie when it’s his turn to shout a round at the bar. What a bloodbath — a fall of 3.7 per cent and the biggest single day fall since May 2020. A cool $160 billion has disappeared over two days’ trade.
For homeowners, it’s a comeback story for the ages. Beaten, battered, bloody and bruised ... but still standing, just holding on and desperate for the bell.
It’s Rocky, but the untold household budget version where Balboa emerges defeated from the bank manager’s office only to return minutes later with a missing $1000 for the mortgage he found stuffed under his hat and a barely-coherent mumbled threat to take his business across the street. Rematch? Don’t want one.
And when you add it all up, those are some pretty big nails hammered into the coffin of a rate rise. Dead. Buried. Where’s the wake?
Homeowners will live to fight another day with one eye fixed on the future, just waiting for a little mortgage relief. That’s still a ways off. December, some say. More likely February next year ... and only it if proves true that households will choose to bank their July 1 tax breaks and savings from power bill credits instead of spending it.
But, just like Rocky, there’s always another fight on the horizon.
“All I wanna do is go the distance.”
Amen, brother.
Key Events
Bullock rules out rate cut in near term
RBA governor Michele Bullock is speaking now in Sydney.
She moved to hose down speculation about a potential interest rate cut this year after markets had started to back one in.
“A rate cut is not on the agenda in the near term,” Ms Bullock told journalists.
The RBA’s view is that “there is still a risk inflation will take too long to return to target”, she said.
She acknowledged many households are under pressure but the central bank’s view is that inflation has a worse impact.
Mood of the market right now?
We’ll just leave this here ...
RBA stuck in ‘holding pattern’
We think this keeps the RBA in a holding pattern for the foreseeable future, likely at least six months leaving rates unchanged and they won’t want the market to perceive either a dovish or hawkish bias at this point.
That’s the view of Harvey Bradley, portfolio manager at Insight Investment, who said last week’s better-than-expected core inflation data has taken the threat of a rate hike off the table.
But he said the “holding pattern” was at odds with most other central banks “who continue to signal the next move in rates will be down”.
“There has been a significant ‘risk-off’ move in global markets leading up to this RBA meeting. Markets are now pricing in 50bps cuts from US and European central banks in Q4.”
‘Making progress’ but Chalmers warns of global volatility
Treasurer Jim Chalmers said the decision to hold rates was “welcome”.
He said he had been briefed by his department about international volatility over recent days.
“It’s a decision which recognises the progress we’ve made on inflation, the softness in our economy, and very substantial global pressures,” Mr Chalmers said.
“This market volatility has been driven by weaker than expected jobs growth and tech earnings in the US, as well as rising Japanese interest rates impacting investor sentiment in Asian markets.
“Australia is not immune from these global developments, we’ve seen them reflected in the Australian dollar and our own share markets.”
Overseas headwinds
Wihile problems at home are of concern, the RBA is also keeping one eye on geographical and geopolitical developments, noting “there also remains a high level of uncertainty about the overseas outlook”.
“The outlook for the Chinese economy has softened and this has been reflected in commodity prices,” the RBA’s statement said.
“Some central banks have eased policy, although they remain alert to the risk of persistent inflation.
“Globally, financial markets have been volatile of late and the Australian dollar has depreciated. Geopolitical uncertainties remain elevated, which may have implications for supply chains.”
When will inflation be back within RBA’s sweet spot?
It’s unlikely to happen next year, warns the RBA.
“The central forecasts set out in the latest Statement on Monetary Policy are for inflation to return to the target range of 2–3 per cent late in 2025 and approach the midpoint in 2026.
“This represents a slightly slower return to target than forecast in May.”
And that’s bad news for anyone hoping for rate relief for their household budget anytime soon.
Yes, but ...
The RBA board’s statement released just moments ago says while inflation has come down, it remains stubbornly high.
“ ... the latest numbers also demonstrate that inflation is proving persistent,” it said.
“In year-ended terms, underlying inflation has now been above the midpoint of the target for 11 consecutive quarters. And quarterly underlying CPI inflation has fallen very little over the past year.
“The economic outlook is uncertain and recent data have demonstrated that the process of returning inflation to target has been slow and bumpy.”
And it’s a hold!
That makes it six straight since November last year.
As expected, the RBA will leave the official cash rate at 4.35 per cent.
We’ll hear later today when the board may start to bring down rates when governor Michele Bullock fronts the media pack in an hour.
Brace people, we’re not far away now
Ten minutes and we’ll know if the RBA will show their hand and admit they took too long to go hard on raising rates and deliver a hike.
Or will yesterday’s market meltdown and last week’s cooler trimmed mean inflation figure give them pause to keep treading the narrow path?
You’ll find out here as soon as we know.
‘Not out of the woods yet’
Analysts from VanEck are expecting to see some economic ripples that point to a slowdown in the economy, which means inflation may finally start receding.
“This week’s global market volatility is one such ripple,” said head of investments and capital markets, Russel Chesler.
“While it may turn out to be just a blip, any prolonged negative sentiment should not be underestimated.
“Markets are now pricing in four to five rate cuts in the US, and while we don’t believe this will have an effect on local rates, it is a different story if the US enters recession.”
Mr Chesler points out the the RBA took longer to lift rates and didn’t go as far as other central banks. He is tipping a first rate cut will be well into 2025.
“According to many data points, we still have a lot of strength in the economy, with high employment and an expectation that wages are still going up, off the back of July’s increase to the minimum wage. It is important to remember that we are not out of the woods yet,” he said
“However, there aren’t many more opportunities for the RBA to make a move this year. We don’t expect a rate change in September as there will not be enough new data at that point to inform such a decision.”
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