Economists say RBA's focus is on bringing down inflation, not following Fed's recent rate cut
Economists at major bank ANZ expect the Reserve Bank of Australia (RBA) to keep the cash rate unchanged at 4.35% in its upcoming Sept. 23-24 meeting.
Despite the Federal Reserve’s recent decision to ease its rate by 50 basis points, the bank’s experts believe this will not directly impact the RBA’s decision.
“We think the RBA will retain much of the hawkish language from the August meeting,” said Adam Boyton (pictured above), head of Australian economics at ANZ. “They will likely consider two options: hold or hike.”
Boyton added that RBA governor Michele Bullock has emphasised the importance of price stability as key to achieving full employment, which suggests the central bank sees its path differently from the US Federal Reserve.
“This could be read as drawing a distinction between where the RBA sits on its mandate — addressing high inflation — and the Fed’s position, where inflation is low enough for them to shift focus to the labour market,” he said.
Looking ahead, Boyton expects the RBA to begin easing rates in February 2025. However, he acknowledged that the risks appear tilted towards a later start, given current trends in the labour market.
The August labour force survey revealed a solid employment rise of 47,500, exceeding expectations. Quarterly average employment growth has reaccelerated to 0.9% quarter-on-quarter in August, the strongest pace in over a year, driven by full-time work.
The Australian Bureau of Statistics (ABS) also reported that significant numbers of people are entering the labour force and finding jobs, further underscoring the strength of the labour market.
The economists said they will be closely watching the August monthly Consumer Price Index (CPI) indicator, which is due to be released the day after the RBA’s September meeting. ANZ expects annual headline inflation to fall by 0.8 percentage points to 2.7% year-on-year, largely driven by a steep decline in electricity prices as rebates continue to roll out.
However, Boyton cautioned that this drop will not provide a full picture of the underlying inflation pressures that concern the RBA.
“The August print will provide more information on non-tradables and services inflation, which reflect the domestic price pressures the RBA is more concerned about,” he said.
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