RBA Recap

• Market expectations for a September rate hike surged to nearly 60% before the RBA decided to hold the cash rate steady, but no reintroduction of a tightening bias saw this expectation reduce greatly.
• Despite leaving the cash rate unchanged, the RBA’s statement acknowledged that inflation is easing slower than expected and remains high. Governor Bullock emphasised that the current rate is appropriate but warned of a potentially bumpy path ahead.
• The RBA revised its inflation forecasts upward but maintains that inflation will return to the target range, assuming a higher-for-longer cash rate profile.

The Australian Economy

• Inflation rebounded in Q1-2024, exceeding expectations. While non-tradeable services tend to make up most of the inflationary pressures, tradeable goods’ inflation has significantly dropped. Services inflation remains high due to persistent wage pressures and will be an area of concern for the RBA going forward.
• Despite cooling demand, Australia’s strong population growth has maintained aggregate demand, and the labour market remains tight.
• For the RBA to achieve its inflation target by 2025, easing in the labour market and sustained subdued demand will be key.

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