Interest Rates in Australia Expected to Stay on Hold

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The big four banks in Australia are predicting interest rates to remain on hold as representatives gather at the Reserve Bank of Australia (RBA) meeting on June 18.

Members of the RBA are holding a two-day meeting from June 17 to discuss monetary policy and are expected to provide an update on interest rates at 2:30 p.m.

The official interest rate in Australia is currently at 4.35 percent, with multiple banks predicting a cut is unlikely until November.

Commonwealth Bank of Australia said it expects the cash rate will be left unchanged at the June Board meeting in a “straight forward decision.”

Explaining this reasoning, senior economist Belinda Allen said both the first quarter 2024 national accounts and labour market data have largely been in line with the RBA’s latest forecasts.

“The federal budget was a little more expansionary than expected, but we do not expect it to have shifted the RBA’s assessment of the economic outlook,” she said in an Economics Daily alert (pdf) on June 17.

“The board is expected to reiterate it is not ruling anything in or out. Looking forward, the quarter two 2024 Consumer Price Index print due July 31, the week ahead of the August board meeting, will be important, and we consider the August meeting as potentially live.”

Meanwhile, the ANZ Bank is also tipping interest rates to remain on hold. In a research note on June 17, ANZ economists said, “We'd expect the cash rate to remain at 4.35 percent” at the June RBA meeting.

“Upward revisions to household consumption revealed in the national accounts should see the Board describe consumer spending as less weak than previously thought,” ANZ said in a research note to investors.

“On inflation, we think the post-meeting statement will note that recent fiscal cost of living measures were not reflected in the RBA’s inflation forecasts published in May, but that these measures should also not have a significant impact on core inflation.”

ANZ economists noted the past week saw “welcome news” on U.S. inflation with May CPI data moderating and both May Producer Price Index and import price inflation falling month on month.

That followed improved inflation in April, the ANZ noted. The actions of the United States Federal Reserve can sometimes weigh on Australian interest rate movements.

Further, Westpac Banking Corp Chief Economist Luci Ellis is predicting a rate cut in Australia is unlikely before November.

“The likely trajectory of disinflation from here precludes a rate cut much before November,” she said.

Ms. Ellis said the trimmed mean measure of inflation was still a full percentage point above the top of the target range over the year to the March quarter.

She added that the bank would be watching this measure more closely as temporary factors buffet the headline measure in coming quarters.

“However, even with a further moderation in trimmed mean inflation, it will take time for enough evidence to accumulate to convince the Board that the disinflation is firmly on track to reach 2 to 3 percent on a sustained basis,” she said.

“The main thing that would cause the RBA to push back the timing of its first rate cut is inflation remaining sticky above the target range.”

RBA Waiting On Consumer Price Index Data In July

NAB also noted in a briefing on June 17 that it expects the RBA to keep rates on hold with very little change to its “not ruling in or out guidance.”

“Governor Bullock made clear the RBA is waiting for the quarter two Consumer Price Index on July 31 to update their forecasts and assessment of risks,” NAB economists said.

“While Governor Bullock is conscious of two-sided risk on the RBA’s inflation forecasts, there is an obvious high bar to hiking given policy is assessed to be restrictive, activity is soft and there are signs of easing in the labour market.”

Meanwhile, AMP chief economist Shane Oliver said on June 13 that rate cuts are still maybe six months away, with a risk rate cuts will not take place until early next year.

He noted that Australian jobs growth has cooled and labour underutilisation has drifted up, but despite this, the labour market “still remains relatively tight.”