(Australia) The Reserve Bank of Australia will keep the cash rate on hold for the third month in a row on Tuesday with inflation slowing, but economists say the threat of a re-acceleration of price growth means rates could go up again.
Australia’s gross domestic product data for the second quarter will also be released on Wednesday with the economy expected to have slowed further after the RBA’s 12 interest rate rises since last year.
“This week’s National Accounts will inevitably show the impact on our economy of high interest rates, high but moderating inflation and continuing global uncertainty,” Jim Chalmers said on Sunday.
“We’ve been clear and upfront that we expect growth in our economy to slow considerably over the next year.”
The RBA is aiming for a soft economic landing to protect gains made in the job market in past years. Contrary to many of its international peers, it is willing to accept inflation to only return to its 2 per cent to 3 per cent target in 2025.
The benchmark S&P/ASX 200 Index is set to kick off the week on a positive note extending last week’s 2.3 per cent advance. ASX futures climbed 31 points, or 0.4 per cent to 7274 over the weekend, after a jump in unemployment in the United States gave the Federal Reserve breathing room on interest rates.
Data released in the US on Friday showed the August unemployment rate rose to 3.8 per cent while wage inflation slightly eased. Non-farm payrolls rose more than expected, but data for July was revised lower.
The figures were encouraging for the Fed as it battles inflation, cementing expectations it is near the end of its tightening cycle and will hold rates at the 5.25 per cent to 5.5 per cent range later this month.
Fed funds further reduced the chances of another rate increase by December, ascribing a 36 per cent chance of a move, from 50 per cent late August.
US financial markets will be closed on Monday for Labor Day.
RBA certain to hold rates steady on Tuesday
In Australia, bond markets suggest there is no chance of an interest rate move on Tuesday when RBA board members meet for the final cash rate call under Philip Lowe’s leadership.
“The evidence around an ongoing weak economy and slowing inflation will encourage the board to extend its pause through to the end of the year and into 2024,” said Bill Evans, chief economist at Westpac.
Analysts expect the policy statement to keep a tightening bias. “We think risks remain that the inflation data over the next couple of months could see the RBA act on that tightening bias,” said Taylor Nugent, an economist at National Australia Bank.
Shaded economic activity
GDP on Wednesday will show a subdued economic growth due to elevated inflation, rising borrowing costs, and cautious spending among consumers.
The growth rate is anticipated to tick up 0.3 per cent in the April to June period, from 0.2 per cent in the first quarter. Annually, the pace is expected to cool to 1.7 per cent from a year ago. The report will include data on wages, prices, and productivity.
“Real retail spending will pose a drag on consumption, while a sharp drop in net exports poses a downside to our forecast,” said Prashant Newnaha, a senior macro strategist at TD Securities.
“However, the jump in housing market activity could translate to a stronger construction pipeline and help offset weaker growth over Q2.”
The broker expects an economic growth gain of 0.2 per cent this quarter. (AFR)
