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RBA Shows Caution in Rate Decisions, Leaving Possibility for Future Hikes

RBA Shows Caution in Rate Decisions, Leaving Possibility for Future Hikes

RBA Shows Caution in Rate Decisions, Leaving Possibility for Future Hikes?w=400
The Reserve Bank of Australia (RBA) is expected to keep interest rates steady for a third consecutive month in September, but the possibility of future rate hikes is still on the table.

Cautious Approach to Rate Decisions

The RBA's board is set to convene this afternoon to determine the monthly cash rate decision. Following two months of holding rates steady, this cautious approach has been influenced by the previous four percentage point increases that have placed significant pressure on borrowers.

However, recent economic indicators have provided optimism for another hold in September. The consumer price index showed a convincing slowdown, decreasing from 5.4 percent in June to 4.9 percent in July. Furthermore, signs of a softening job market and stagnant wages have also added weight to the case for maintaining the status quo.

Economic Considerations and Continued Monitoring

Judo Bank economist Warren Hogan noted that inflation has been moderating according to the RBA's forecasts, allowing the board some room to observe and monitor the situation in September. Nonetheless, he cautioned against premature celebration, asserting that the overall state of the economy remains a significant concern.

While there may be a slowdown in economic growth, Hogan stressed that sustained softness would be required until next year for demand to rebalance with supply and for inflation to return to the RBA's desired two to three percent target. The strength of retail sales and business investment suggests that the economy remains resilient.

Mr. Hogan shared his belief that the RBA still has room for one more rate hike in order to achieve a level of comfort throughout next year.

Expectations for Future Decisions

Similarly, Westpac economist Bill Evans expressed confidence in the RBA maintaining their stance at the September meeting. Evans noted that the central bank missed an opportunity to take more action against inflation last month.

Moving forward, the focus is likely to shift toward discussions around the timing of the first rate cut, with expectations pointing towards the September quarter of 2024.

Published:Tuesday, 5th Sep 2023
Source: Paige Estritori

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