Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
MNI (SYDNEY) - The Reserve Bank of Australia is expected to hold its cash rate at 4.35% when it delivers its next decision on Sept 24 as the labour market continues to show resilience, which will add to the Board's caution ahead of quarterly CPI, wages and GDP data.
The RBA’s admission at its August meeting that the labour market was tighter than previously thought, alongside concerns over excess demand, will make it cautious until it sees greater evidence of employment market weakness. (See MNI RBA WATCH: Board Holds, Shrugs Off Market Volatility) The Board will also want to see evidence core inflation is falling back to the 2-3% target and will look through headline CPI results distorted by government policy to reduce electricity costs.
RBA overnight index swaps have priced in no change for next week's meeting, however, markets increasingly expect a 25-basis=point cut by December and a terminal rate of 3.34% by August.
Former RBA economists have told MNI the Reserve will likely wait until at least Q1 2025 before easing. (See MNI: Markets Overplaying End-of-Year RBA Cut - Ex-Economists)
The Board has held the cash rate steady since it last hiked 25bp in Nov 2023.
LABOUR MARKET
Unemployment held steady over August at 4.2%, in line with market expectations and the RBA’s forecast, which has the rate at 4.3% by Q3. However, job creation again surprised, with the economy adding 47,500 positions compared to the expected 26,000.
The job market’s resilience is in line with the RBA’s concerns in its August Statement on Monetary Policy over the tight labour market and excess capacity, which it said it had previously underestimated.
Assistant Governor Sarah Hunter elaborated on the labour market recently, noting it was operating above full employment. (See chart)
Productivity growth has also failed to perform in line with the RBA’s view, with Q2 National Accounts showing GDP per hour worked fell by 0.8% q/q. While the miss may not fuel a shift in the RBA’s forecasts, it will inject greater caution into any move towards an easing stance.
CPI MOVES
Inflation, particularly services and housing costs, have continued to remain high. While government policy will force headline CPI to fall, the Reserve will look through this and focus on trimmed mean, which will continue to decline moderately.
The RBA will want to review Q3 CPI, wages and GDP data, with updates available prior to its Dec 9-10 meeting. However, one economist recently told MNI the Reserve's easing cycle will likely be a shallow one as the current cash rate was not far from neutral.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.