RBA holds rates steady but tightening bias lingers

RBA central banks interest rates inflation

4 October 2023
| By Rhea Nath |
image
image
expand image

The Reserve Bank of Australia (RBA) has announced it will hold interest rates steady at 4.1 per cent in October, largely in line with market expectations, though further hikes have not been ruled out as inflation risk remains on the upside.

The RBA’s fourth consecutive hold, and Michele Bullock’s inaugural rate call as RBA governor, had been considered all but certain by most.

This, even as the latest monthly consumer price index (CPI) fell outside the RBA’s 2–3 per cent inflation target, rising 5.2 per cent in the year to August.

Announcing the hold, Bullock said there are significant uncertainties around Australia’s economic outlook.

“Services price inflation has been surprisingly persistent overseas and the same could occur in Australia,” she stated.

“There are also uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages respond to the slower growth in the economy at a time when the labour market remains tight. 

“The outlook for household consumption also remains uncertain, with many households experiencing a painful squeeze on their finances, while some are benefiting from rising housing prices, substantial savings buffers and higher interest income. And globally, there remains a high level of uncertainty around the outlook for the Chinese economy due to ongoing stresses in the property market.”

She flagged further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, depending on the data and the evolving assessment of risks. 

Speaking to reporters in Hobart, Treasurer Jim Chalmers conceded Australians are doing it tough and that inflation will be “higher than we like for longer than we like”.

“This is a really welcome outcome for a lot of Australia [...] The last thing Australians needed today was another interest rate rise,” he said. 

Paul Bloxham, chief economist for Australia, NZ and global commodities at HSBC, said the RBA is likely to maintain this tightening bias.

“We have one more 25 basis points hike pencilled in for Q4, likely at the November meetings after the Q3 CPI print, although they could choose to wait for the Q3 wage price index figures and hike in December,” he remarked.

T. Rowe Price portfolio manager Scott Solomon believes there is “little impetus” for Bullock to have disrupted the path set out by her predecessor. 

He explained: “Looking ahead, we are concerned that the RBA will have to hike again as the economy remains robust – home prices up, employment high, government spending resilient with capacity for more. 

“In other words, Bullock’s job won’t be any easier than Philip Lowe’s and will face the same struggles as her central bank counterparts: navigating appropriate policy response in a data-dependent world.” 

ANZ’s head of Australian economics, Adam Boyton, also expected no rate cut until late 2024.

“If we were to, for whatever reason, get a surprise and large decline in the unemployment rate, that would certainly increase the risk the bank will come back to the table, so to speak, and increase interest rates. But for now, our view remains no more interest rate increases, a long-extended pause here at 4.1 per cent, with a rate cut at the very end of next year,” he said. 

Emma Lawson from the Janus Henderson Australian fixed interest team echoed the sentiment.

She said: “We have a modest easing cycle in late 2024, predicated on a slowing in economic growth as it responds to the current contractionary stance of monetary policy.

“We have a modest tilt to the higher case of a peak in the cash rate of 4.35 per cent if services inflation persists. This is most likely to occur if productivity in the economy remains moribund.

“The RBA are now monitoring the balance between the slowing household sector, the strong labour market, and high wages growth. We remain in the midst of the peaking of the economy but believe that policy will continue to grip and slow economic growth, with a shallow recession starting early next year not off the table. 

“The RBA are closely monitoring the rise in oil prices as well as global economic slowing as risks to the outlook.”

Read more about:

AUTHOR

Add new comment

The content of this field is kept private and will not be shown publicly.

Recommended for you

 
sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

 

MARKET INSIGHTS

PETER JOHNSTON- AIOFP

Well done Keith and Neil, these Canberra Bureaucrats need to be stopped. ...

12 hours 6 minutes ago
JOHN GILLIES

WHEN I RETIRED A LOT OF GUY'S WERE STILL PRACTICING FORMS OF COLD CALLING. There nothing wrong with it as a way of estab...

1 day 11 hours ago
JOHN GILLIES

I thought you joined a dealer to be protected and have a better version of regulation explained, BUT The dealers themsel...

1 day 12 hours ago

ASIC has cancelled the AFS licence of a Sydney wealth firm, the fifth Sydney firm to see a cancellation since the start of the year....

1 week 1 day ago

A former financial adviser has been banned by ASIC from providing financial services for inappropriate advice, among multiple breaches....

3 weeks 2 days ago

ASIC has suspended the AFS licence of a Melbourne fund manager responsible for six managed investment schemes....

2 weeks 2 days ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND