Due to the cooling inflation still at a high level, the Reserve Bank of Australia is required to maintain its key interest rate at the highest level in 12 years, and Australia is expected to continue to lag behind the global easing cycle.
Finance Intelligence APP learned that due to the cooling inflation still at a high level, the Reserve Bank of Australia is required to maintain its key interest rate at the highest level in 12 years, and Australia is expected to continue to lag behind the global easing cycle.
Economists predict that the Reserve Bank of Australia will maintain its cash rate at 4.35% unchanged for the sixth consecutive time at Tuesday's meeting. Australia's policy decision was made after the eagerly anticipated meeting of the Federal Reserve last week, when Fed Chairman Powell hinted that the US will begin easing monetary policy in September. The Bank of England also cut interest rates last week for the first time since early 2020 and hinted at further rate cuts in the future.
However, Reserve Bank of Australia Governor Brock is unlikely to adopt this strategy, and economists predict that the Reserve Bank of Australia will debate hiking rates again before agreeing to hold steady.
Citigroup economist Josh Williamson said: "The Reserve Bank of Australia cannot afford to abandon the hawkish bias. The Reserve Bank of Australia needs to convey a message of hawkish pause, indicating that while further progress has been made on inflation issues, it is still too early to consider relaxing contractionary policy."
Brock has retained maximum policy flexibility this year, stating that she needs confidence that price growth is sustainably returning to the central bank's 2-3% target, so the board will not rule out any possibilities.
Data released last week showed that Australia's core inflation unexpectedly slowed in the quarter ended in June, prompting the money market to adjust the probability of a rate cut in December to 88% based on the meeting date of OIS contracts and fully priced in a rate cut for February next year.
Last Friday, sensitive to CPI data and global central banks turning dovish, Australia's three-year bond yield hit its lowest level since April, and the Australian dollar fell.
Nevertheless, the slowdown in price pressures has strengthened the confidence of economists, including former Reserve Bank of Australia Assistant Governor Luci Ellis, that rate cuts may start earlier. But they believe that the central bank will continue to remain hawkish in the short term before it is confident about price trends.
"Given the persistent inflation risks, the board is in no hurry to cut interest rates," said Ellis, chief economist of the West Pacific Bank, adding that the board's post-meeting communication of retaining the phrase "not ruling out any possibilities" is reasonable. We also expect interest rates to only gradually decline.
"Given the persistent inflation risks, the board is in no hurry to cut interest rates," said Ellis, chief economist of the West Pacific Bank, adding that the board's post-meeting communication of retaining the phrase "not ruling out any possibilities" is reasonable. We also expect interest rates to only gradually decline.
During this tightening cycle, the Reserve Bank of Australia has taken an unconventional approach, with lower rate increases than its global counterparts - its key interest rate is 1 percentage point lower than that of the United States - trying to maintain employment growth after the COVID-19 pandemic. The unemployment rate has remained surprisingly low at 4.1%, thanks to strong government recruitment at the state and national levels.
The Reserve Bank of Australia's lower cash rate may explain why inflation has proven tricky to beat, and it may still be too early to say that price pressures have been beaten. The core CPI of 3.9% is still far above the bank's 2-3% target, and the Reserve Bank of Australia is expected to reach this target by the end of next year. If this expectation is not met, it will damage its credibility in inflation fighting.
Bloomberg Economics economist James McIntyre said: "Although we believe that rate hikes will be on the agenda at the August board meeting, our bet is that the Reserve Bank of Australia is currently choosing to keep interest rates at a higher level in the long term."
Economists say a key uncertainty is how households will respond to income tax cuts and energy rebates that began last month. In fact, government spending will increase ahead of the 2025 election, and the Reserve Bank of Australia will not signal too early for the next rate cut.
Policymakers will also closely monitor immigration issues, which have been a key support for the country's economy and a partial cause of inflationary pressures.
The latest data shows that in the last quarter of 2023, net immigration remained close to a record high of 547,000, but this trend appears to be slowing down as temporary visas and student visas decrease.
UBS Group's economist Nicolas Guesnon said, "UBS has long expected that strong immigration-driven population growth, in addition to fiscal spending, will boost consumer demand, asset prices, and inflation. However, if fiscal policy is more restrictive than expected or population growth slows below government targets, the Reserve Bank of Australia may have room to ease monetary policy ahead of time."