For the fourth straight month in a row the RBA is expected to keep official interest rates on hold at 4.1%. This is despite monthly inflation having ticked up from 4.9% in July 2023 to 5.2% in August 2023.
While it appears the RBA is finished with its interest-rate-hiking cycle as inflation trends lower, all their communications for quite some time have stressed that further interest-rate hikes may be required.
“Further tightening in policy may be required should inflation prove more persistent than expected.”
The next key read on inflation is the September quarter CPI report. This is out on the 25 October 2023.
Unlike monthly inflation figures that are partial indicators, the quarterly CPI report will give us a full and clearer picture of where Australia is at with its inflation fight. This will in turn inform the RBA’s interest rate decisioning in the months ahead.
Some emerging signs on the horizon
There are a number of emerging external factors on the horizon that could play on the RBA’s mind. These factors are around their concerns for inflation in the coming months.
-Higher for longer; In the USA the Federal Reserve last week kept official interest rates on hold at 5.25% – 5.50%. This did not stop their bond market from taking the benchmark US 10 year treasury bond to the highest level in 15 years at 4.61%.
The key concern dawning on the USA financial markets is that inflation could remain higher for longer.
Global money generally chases higher returns. If Australia’s interest rates remain flat at 4.1% and USA’s continues to rise, this will cause interest rate differentials to widen futher.
The price to be paid by Australia will be in the form of a lower AUD/USD exchange rate. A lower exchange rate will make imported goods and services more expensive and add to inflation. The AUD/USD is already down from 0.7050 at the start of 2023 to be at 0.6350 now.
-Oil prices melting higher; Oil prices have melted higher since July 2023 having increased by 30%. The combination of a lower $AUD and higher oil price have resulted in $2.20 per litre at the bowser. This will have an important upside impact on inflation especially during our summer driving season.
Ultimately higher petrol prices will generate their own demand-dampening effect as the consumer’s budget continues to be stretched from every direction.
It will be interesting to read the RBA’s commentary in the months ahead to see how much the RBA is prepared to tolerate without needing to act. It’s all going to come down to their thinking on whether the factors driving inflation now, are going to become baked in, longer lasting or if they think they are transitory.
Let’s see!
RBA interest rates to remain on hold again
For the fourth straight month in a row the RBA is expected to keep official interest rates on hold at 4.1%. This is despite monthly inflation having ticked up from 4.9% in July 2023 to 5.2% in August 2023.
While it appears the RBA is finished with its interest-rate-hiking cycle as inflation trends lower, all their communications for quite some time have stressed that further interest-rate hikes may be required.
“Further tightening in policy may be required should inflation prove more persistent than expected.”
The next key read on inflation is the September quarter CPI report. This is out on the 25 October 2023.
Unlike monthly inflation figures that are partial indicators, the quarterly CPI report will give us a full and clearer picture of where Australia is at with its inflation fight. This will in turn inform the RBA’s interest rate decisioning in the months ahead.
Some emerging signs on the horizon
There are a number of emerging external factors on the horizon that could play on the RBA’s mind. These factors are around their concerns for inflation in the coming months.
-Higher for longer; In the USA the Federal Reserve last week kept official interest rates on hold at 5.25% – 5.50%. This did not stop their bond market from taking the benchmark US 10 year treasury bond to the highest level in 15 years at 4.61%.
The key concern dawning on the USA financial markets is that inflation could remain higher for longer.
Global money generally chases higher returns. If Australia’s interest rates remain flat at 4.1% and USA’s continues to rise, this will cause interest rate differentials to widen futher.
The price to be paid by Australia will be in the form of a lower AUD/USD exchange rate. A lower exchange rate will make imported goods and services more expensive and add to inflation. The AUD/USD is already down from 0.7050 at the start of 2023 to be at 0.6350 now.
-Oil prices melting higher; Oil prices have melted higher since July 2023 having increased by 30%. The combination of a lower $AUD and higher oil price have resulted in $2.20 per litre at the bowser. This will have an important upside impact on inflation especially during our summer driving season.
Ultimately higher petrol prices will generate their own demand-dampening effect as the consumer’s budget continues to be stretched from every direction.
It will be interesting to read the RBA’s commentary in the months ahead to see how much the RBA is prepared to tolerate without needing to act. It’s all going to come down to their thinking on whether the factors driving inflation now, are going to become baked in, longer lasting or if they think they are transitory.
Let’s see!
by Boris Sfiligoi
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