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The Reserve Bank of Australia, under the new governorship of Michele Bullock, has held interest rates steady at 4.1 per cent.

This decision aligns with the expectations of most analysts.

This means there is once again no RBA interest rate rise for October.

The market, which has been increasingly less reactive to interest rate decisions, was in the red this morning, with the ASX200 down nearly 1.6 per cent heading into lunchtime trade.

As predicted by markets when Michele Bullock was first announced as governor – the AUD/USD exchange rate did not shift at the time – Ms Bullock has shown she does not mean to rock the boat or differ from Philip Lowe’s overall tenor.

“Today’s meeting was Governor Bullock’s first in charge, and the board has opted for a strong sense of continuity in its communications. Today’s statement is identical in several passages to last month’s,” Oxford Economics head of macroeconomic forecasting Sean Langcake observed.

NAB analysts also called a pause in their pre-market briefing on Tuesday.

“The economy has outperformed expectations over 2023 to date, but it is slowing appreciably,” Langcake added.

The RBA noted in its statement that inflation still remains too high.

In line with analyst expectations

A Bloomberg-led survey of analysts regarding the Tuesday decision saw only one analyst out of a cohort of thirty bet on an October hike. Many analysts are still expecting at least one more rate rise later this year.

Oxford Economics believes rates are likely to be held at an “extended pause” at 4.1 per cent. Westpac also expects a long-term pause into 2024.

Oil prices and housing prices still threaten Australia’s disinflationary trajectory, with house prices (and rents) forecast to keep climbing into 2025. Both were looked at by the RBA in their decision last month but weren’t perceived as high enough to warrant a hike at the time.

Housing pressures continue, given that Australia’s latest dwelling approvals data show the value of new residential builds rose 3.2 per cent on August MoM.

“The key global economic uncertainties remain, but a solid rise in oil prices have markets worried about inflation pressures returning,” Emma Lawson, Fixed Interest Strategist – Macroeconomics, Janus Henderson said.

Housing pressures continue

Non-residential fell values 1.5 per cent.

However, given approvals fell 7.4 per cent in July, the equivalent bounceback in August effectively means the growth rate hasn’t really grown at all.

That suggests no change to Australia’s prevailing tight housing supply story.

High oil prices also mean higher service station prices, which will also push up spending for consumers, and, businesses with logistics requirements.

In a sign of good news, Brent Crude prices have quickly retreated back to US$90/bbl after approaching the US$100/bbl mark last week.

Renewed anxiety about a US slowdown and the ongoing impact of a slow Chinese growth story continues to weigh on demand.

So too does the Chinese Golden Week holiday, currently active, which will see activity subside somewhat in the world’s second-largest economy (and the largest if you measure it from a price parity point of view.)

El Nino is also one to watch

But these short-term relievers may be just that. One looming issue that threatens to push up inflation further is the spectre of an El Nino summer.

A hotter summer is now tipped to occur by the USA’s NOAA and the Australian Bureau of Meteorology.

El Nino, which sees less rainfall in Australia, typically pushes up the cost of produce in supermarkets.

If these two events should correlate, along with housing pressures and still-sticky services inflation, it’s entirely possible we could get an interest rate rise in November.

About two months ago, investment bank Citigroup analysts were expecting another two rate rises in 2023 from the RBA. That view has now been downgraded to one more hike next month.

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