The exterior of the RBA building. Source: File
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The Reserve Bank of Australia has left interest rates unchanged at 4.1 per cent – news welcomed by mortgage holders and businesses with loans.

The decision comes after last week’s inflation data showed a decrease in the inflation metric to 4.9 per cent – including food and fuel.

Without those volatile elements, however, the reading is actually higher at 5.8 per cent – nearly triple the lower target band range of two per cent.

There hasn’t been much talk from the financial commentary circuit on that front – the happier 4.9 number appears to be what investors and managers alike want to see.

While the interest rates reprieve will be a relief to many, analysts from Citigroup, Morgan Stanley, and elsewhere all predict further rate hikes are a possibility.

Most pundits expect a rise in November, which is also the situation in the US.

Twenty minutes after the news, the ASX200 and All Ords showed a fairly subdued response, with no real volatility to speak of in any direction.

However, Australia’s tech index – running strong all year largely on the back of the USA’s aggregate megacap 7 performance – has broken into the green.

Oxford Economics has called an extended hold on the interest rate at 4.1 per cent unless inflation makes surprise moves upwards.

“The RBA is flagging they are content with inflation overshooting the target until well into 2025. Unless inflation expectations start to drift upward, we expect rates will be on hold for an extended period. We do not expect the change of Governor from next month will make a material difference to the Bank’s approach on interest rates,” Oxford Economics Head of Macroeconomic Forecasting Sean Langcake said.

City Index Senior Market Analyst Matt Simpson noted the move was in line with expectations.

“Well, the hold we expected was delivered, in what could be seen as an underwhelming exit for Dr Lowe. But it was the right choice,” he said.

“I suspect the RBA kept in the obligatory phrase ‘some further tightening of monetary policy may be required’ in order to make sure inflation expectations remain well anchored. Even though most Australian economic data points and softer China data warrant a peak rate at 4.1 per cent.”

On Monday, statistics from the ABS showed that Australian company profits fell 13 per cent in Q2 of the calendar year, suggesting the RBA’s strategy of interest rate hiking is working. The mining sector led the fall.

The move also follows recent contrarian retail data that actually beat consensus estimates of 0.3 per cent growth at 0.5 per cent growth – Morgan Stanley analysts were expecting a smaller 0.1 per cent gain.

Knight Financial Advisors Director Jason Featherby noted that inflation and business profit data are heading in the direction the RBA wants – and as for a subdued market reaction, noted that nobody has been caught out by surprise.

“It’s not surprising, I think the [RBA] would be happy with the direction the economic data is going – unemployment is ticking up, retail spending is softening, and most importantly the CPI figure is trending downward,” he said.

“Most importantly, you’ve got four or five indicators all pointing in the same direction.”

In the background, Australia released its national balance of payments data today, showing that falling commodity prices were hitting Australian exports.

While not necessarily related to the RBA’s remit, the data adds more detail to a picture of an Australian economy under pressure.

Still, there’s an upside for Australia’s GDP data out tomorrow.

“Weaker export prices led to a sharp fall in export values. But looking through price movements, volumes were up in the quarter. In contrast, import demand was broadly flat in Q2, meaning goods trade will make a positive contribution to GDP growth in Q2,” Mr Langcake said.

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