Interest rates are set to be on hold again at 4.35% at tomorrow’s RBA board meeting.
Interest rates have been stable since Dec 2023 and they will probably remain so for the rest of 2024.
Quarterly inflation numbers
Wednesday’s hugely influential quarterly inflation numbers showed enough to prevent the RBA from raising interest rates at next Tuesday’s RBA board meeting. However, they did not show enough to give us an indication that interest rates could be cut any time soon.
While headline inflation was slightly up from 3.6% to 3.8%, encouragingly, the RBA’s preferred measure of inflation—the trimmed mean—fell slightly from 4.0% to 3.9%.
It is concerning that non-discretionary inflation is tracking at 4.5% annualised pace. Unfortunately it is not falling as fast as discretionary inflation at 2.8%. If these two inflationary indicators were in line, the RBA’s job would be done and we’d all be talking about near term interest-rate cuts.
The RBA’s fine line
Without trashing the economy, the RBA is trying to engineer inflation lower to the government-mandated target of 2% – 3%. This requires the RBA to constantly walk a dangerously fine line.
RBA interest rate adjustments can take 6 to 9 months to properly feed their way through the economy. Squeezing inflation lower from current levels will take time, commitment and perseverance from RBA. This is why the RBA will likely keep rates on hold for some time.
The Overseas Picture
At this stage in the economic cycle, I think its also important to keep a keen eye on what is going on overseas in the major economies. Major central banks in other parts of the world are either cutting interest rates or indicating future cuts. For example, European, Canadian and UK central banks recently cut their rates by 0.25%. In the USA interest rates remained on hold but their central bank indicated cuts later this year as a economic slowdown seems to be taking hold. It is hard to see our RBA hiking interest rates against this backdrop.
The Jawboning RBA
The RBA only has 2 ways to influence the economy and in turn, inflation;
1. Movements in interest rates
2. Jawboning—warning, scaring us with their talk. Don’t be surprised if the RBA Governor continues to frighten us (through her commentary) with the possibility of future interest rate rises. This is her standard method of keeping the screws on our spending.
Let’s see!
Same old?
Interest rates are set to be on hold again at 4.35% at tomorrow’s RBA board meeting.
Interest rates have been stable since Dec 2023 and they will probably remain so for the rest of 2024.
Quarterly inflation numbers
Wednesday’s hugely influential quarterly inflation numbers showed enough to prevent the RBA from raising interest rates at next Tuesday’s RBA board meeting. However, they did not show enough to give us an indication that interest rates could be cut any time soon.
While headline inflation was slightly up from 3.6% to 3.8%, encouragingly, the RBA’s preferred measure of inflation—the trimmed mean—fell slightly from 4.0% to 3.9%.
It is concerning that non-discretionary inflation is tracking at 4.5% annualised pace. Unfortunately it is not falling as fast as discretionary inflation at 2.8%. If these two inflationary indicators were in line, the RBA’s job would be done and we’d all be talking about near term interest-rate cuts.
The RBA’s fine line
Without trashing the economy, the RBA is trying to engineer inflation lower to the government-mandated target of 2% – 3%. This requires the RBA to constantly walk a dangerously fine line.
RBA interest rate adjustments can take 6 to 9 months to properly feed their way through the economy. Squeezing inflation lower from current levels will take time, commitment and perseverance from RBA. This is why the RBA will likely keep rates on hold for some time.
The Overseas Picture
At this stage in the economic cycle, I think its also important to keep a keen eye on what is going on overseas in the major economies. Major central banks in other parts of the world are either cutting interest rates or indicating future cuts. For example, European, Canadian and UK central banks recently cut their rates by 0.25%. In the USA interest rates remained on hold but their central bank indicated cuts later this year as a economic slowdown seems to be taking hold. It is hard to see our RBA hiking interest rates against this backdrop.
The Jawboning RBA
The RBA only has 2 ways to influence the economy and in turn, inflation;
1. Movements in interest rates
2. Jawboning—warning, scaring us with their talk. Don’t be surprised if the RBA Governor continues to frighten us (through her commentary) with the possibility of future interest rate rises. This is her standard method of keeping the screws on our spending.
Let’s see!
by Boris Sfiligoi
Share This
Categories
Getting It Right Matters
We choose to specialise in finding loans which create solutions.