At next Tuesday’s RBA Board meeting, it’s clear it is going to keep interest rates on hold at 4.1% for the third straight month in a row. 

There’s no reason to change anything for now; consumer sentiment remains weak, retail-sales is soft, wages-growth is moderating, the fixed-rate cliff is in full swing, and monthly inflation came in at 4.9%.

Keep in mind the monthly inflation figures tend to be more volatile. The quarterly inflation numbers to be released next week on Wednesday 13 September 2023, will give us a better read on inflation’s trajectory. 

A new RBA Governor

The meeting this week will be the last meeting for Philip Lowe as RBA Governor. He is to be replaced by Michele Bullock so this is another reason to preserve the RBA’s interest rate status quo.

Inflation’s long road ahead

Even though inflation is moderating, it remains persistent and stubbornly high. It’s interesting that the RBA doesn’t forecast inflation to be back between its target range of 2-3% until late 2025. 

This implies that the RBA is going to try to deftly manage inflation lower, without tanking the economy, over a long period of time by keeping interest rates on hold for quite some time. 

The RBA will only consider cutting interest rates if economic growth drops too far too quickly or if they are absolutely sure that inflation has found a new permanent lower level.

Inflationary Risks

Possible upside inflationary risks to watch out for include; the resumption and strength of the residential property market, services inflation and a major fall in the $AUD, making imports more expensive and inflationary.

Let’s see!