Rates Held, Tightening Bias Retained, China Economy Area Of Concern

At Governor Lowe’s final meeting, the RBA left rates at 4.1% for the third consecutive time. The meeting statement was little changed from August and the tightening bias was retained as “some further tightening of monetary policy may be required” to return inflation to target. There remain considerable uncertainties around the inflation and growth outlook but the RBA continues to be data and forecast dependent and while the economy evolves as expected is unlikely to raise rates. But an imminent pivot to an easing bias is improbable.

• The reasons for leaving rates unchanged in September were the same as in July/August. There has been 4pp of tightening and it is “working” but there is still a lot of “uncertainty surrounding the economic outlook” and so the decision gives the Board more “time to assess the impact” of hikes to date.
• There were few statement changes but the main one was pointing out that there was “increased uncertainty” regarding China’s economic outlook due to problems in the property sector. The RBA continues to monitor global developments closely and this will be an important part of that.
• Inflation remains “too high” and it was noted that this will be the case “for some time yet” despite the lower-than-expected July CPI. The central bank continues to be “resolute” in returning inflation to target. It reiterated the warnings regarding the damage high inflation can do, and one change was that it is weighing on real incomes and thus consumption. It observed again the experience overseas re sticky services inflation, which in Australia is yet to turn down clearly, and the uncertainty re how wages and prices will respond to slower growth. Wages remain consistent with the inflation target as long as “productivity growth picks up”.
• See September meeting statement here.