RBA set to extend cash-rate pause next week

The Reserve Bank of Australia is expected to maintain the status quo in its October 2023 monetary policy decision, holding rates for the fourth consecutive month at 4.10%.

The new RBA Governor Michele Bullock will be considering the latest economic developments, particularly on inflation, in her inaugural board meeting.

Latest figures show that the surge in fuel prices have driven the CPI monthly Inflation indicator to 5.2% in the 12 months to August, up from 4.9% in July.

Meanwhile, retail turnover lifted 0.2% over the month — this modest rise seem to indicate that consumers continue to restrain their retail spending.

Economists from all major banks are tipping another month of rate-pause extension in October. Here’s what each of them had to say:

ANZ – Hold at 4.10%

ANZ economists Madeline Dunk and Adelaide Timbrell said the growth in retail sales in August was soft, supporting the likelihood that the RBA will hold rates in October.

“The RBA appears comfortable to continue its extended pause,” they said.

“We expect growth to remain soft for the remainder of 2023. We do, however, think spending will lift in 2024 as real household disposable income growth returns.”

The two economists also pointed out the moderation of job vacancies from very high levels.

“However, the level of vacancies is still 71.5% higher than before the pandemic,” they said.

CBA – Hold at 4.10%

CBA chief economist Stephen Halmarick said the hurdle for another rate hike is high and that Australia is likely to see an extended period of no change in the 4.1% cash rate.

“The risks to that view over the remainder of 2023 is, however, to the upside,” he said.

“This is especially so given the recent substantial increases in the cost of oil will feed into the CPI in coming months and there is uncertainty as to what extent the Q3 23 Wage Price Index data  will show an acceleration in both the quarterly and annual pace of wages growth given the recent National Wage case, higher public sector pay rises and some increases in key Enterprise Agreements will all feed into the data.”

Over the next months, however, Mr Halmarick said a further weakening in domestic consumer spending and a slowdown in the pace of global economic growth are likely expected, which will keep the RBA on hold into 2024.

“As detailed below, however, we have now pushed our expectation for the first monetary policy easing by the RBA from the March Board meeting to the May 2024 Board meeting,” he said.

NAB – Hold at 4.10%

While NAB head of market economics Tapas Strickland said the RBA is likely to hold in October, the details of the latest inflation print suggest upside risks, particularly in terms of the sticky services inflation.

“In our view that should see the RBA lift rates again by November,” he said.

Westpac – Hold at 4.10%

Westpac chief economist Bill Evans said all signs are pointing out to the RBA extending the hold for quite some time.

“The Board meetings which occur immediately before the release of the quarterly Inflation Report and the updating of the staff’s forecasts (namely those in April, July and October) have been ones where the Board has shown a preference to pause – even during this long tightening cycle,” he said.

“Rates remained on hold in August and September so a move in October would be very surprising. That does not preclude the Board from continuing to consider the two options – an increase of 0.25% or hold rates steady.”

Mr Evans said the RBA is projected to start easing by August next year.

“Our forecast for the conditions the Board will be facing by then will be an inflation rate that has fallen from 4.1% to 3.4%; an unemployment rate of 4.5%; and economic growth through the year to June of 1.0%,” he said.

“One argument we see for the expected rate hike by March is that Australian rates are just too low relative to other central banks.”

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