The RBA’s 1 Aug 2023 decision will again be a close call and I think there’s every chance they will raise by 0.25% to make the official cash rate 4.35%.
Fingers crossed, this may be the last RBA interest-rate rise for a while.
Changing of the guards
If it was not for the appointment of Michele Bullock as the new RBA Governor (starting in September 2023), my call would have been for a pause this month. August’s RBA board meeting presents the last practical chance for the current RBA Governor Philip Lowe, to buy his colleague insurance before she is officially in the hot-seat on her own.
Additionally, unemployment continues to hug historical lows at 3.5% and inflation, while clearly decelerating, is still too high at 6%— a long way from the RBA 2%-3% target band.
The longer it takes inflation to come down, the more it will become entrenched. It’ll then start to influence the next round of wage demands and price increases.
The issue is that people have jobs and don’t fear being without one. I don’t think people will properly stop spending at a 3.5% unemployment rate because another job is just around the corner. As the incoming RBA Governor Ms Bullock recently warned,
“the jobless rate would have to climb from the current rate of 3.6 per cent to 4.5 per cent to tame inflation, implying about 140,000 people could lose their jobs in the next 18 months. Inflation would not return to the central bank’s 2 per cent to 3 per cent target band without a sustained period of below-trend employment growth.
World interest rates still rising
Interestingly, even though inflation is retreating in most other developed parts of the world, a number of central banks raised their interest rates in the last month. This includes USA up 0.25% to 5.50%, the UK raised by 0.50% to 5%, and Bank of Canada raised by 0.25% to 5.00%. The RBNZ is already at 5.50%.
At 4.10% we are still a long way off most other countries even though each country has its own internal idiosyncrasies relating to their loan market.
Another thing to consider is the differential between the world’s interest rates and ours. If the differential becomes too big the $AUD will suffer and generate imported inflation by making imported products more expensive for us to buy.
Let’s see!
Interest rates – another close call
The RBA’s 1 Aug 2023 decision will again be a close call and I think there’s every chance they will raise by 0.25% to make the official cash rate 4.35%.
Fingers crossed, this may be the last RBA interest-rate rise for a while.
Changing of the guards
If it was not for the appointment of Michele Bullock as the new RBA Governor (starting in September 2023), my call would have been for a pause this month. August’s RBA board meeting presents the last practical chance for the current RBA Governor Philip Lowe, to buy his colleague insurance before she is officially in the hot-seat on her own.
Additionally, unemployment continues to hug historical lows at 3.5% and inflation, while clearly decelerating, is still too high at 6%— a long way from the RBA 2%-3% target band.
The longer it takes inflation to come down, the more it will become entrenched. It’ll then start to influence the next round of wage demands and price increases.
The issue is that people have jobs and don’t fear being without one. I don’t think people will properly stop spending at a 3.5% unemployment rate because another job is just around the corner. As the incoming RBA Governor Ms Bullock recently warned,
“the jobless rate would have to climb from the current rate of 3.6 per cent to 4.5 per cent to tame inflation, implying about 140,000 people could lose their jobs in the next 18 months. Inflation would not return to the central bank’s 2 per cent to 3 per cent target band without a sustained period of below-trend employment growth.
World interest rates still rising
Interestingly, even though inflation is retreating in most other developed parts of the world, a number of central banks raised their interest rates in the last month. This includes USA up 0.25% to 5.50%, the UK raised by 0.50% to 5%, and Bank of Canada raised by 0.25% to 5.00%. The RBNZ is already at 5.50%.
At 4.10% we are still a long way off most other countries even though each country has its own internal idiosyncrasies relating to their loan market.
Another thing to consider is the differential between the world’s interest rates and ours. If the differential becomes too big the $AUD will suffer and generate imported inflation by making imported products more expensive for us to buy.
Let’s see!
by Boris Sfiligoi
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