The Reserve Bank of Australia (RBA) has acted largely in line with expectations and kept Australia’s interest rates paused at 4.35 per cent.
The Australian market had been growing its confidence since late November the RBA would pause for December.
The ASX’s RBA rate indicator showed that only two per cent of traders expected a rate raise as of December 2.
Widely expected pause
Forex markets had also priced in an RBA pause for interest rates well before the sun rose.
The AUD strengthened over the USD slightly in the lead-up to the decision.
High-impact AMP economist Shane Oliver had previously told reporters he did not see any catalyst for a December rate rise.
This was echoed by other investment and retail bankers alike. Analysts at Barclay’s, Commonwealth Bank, NAB, and Westpac, all called a pause, too.
Attention will now turn towards the RBA Policy Statement where any sharp change in language is expected to lead to volatility on the markets.
Economic snapshot
Australia’s key economic data from recent weeks, in addition to the interest rate, has given us this picture:
- October headline inflation at 4.9 per cent (vs 5.6 in September)
- Trimmed mean inflation at 5.3 per cent (vs 5.4 in September)
- Unemployment is at 3.7 per cent (vs 3.5 in September)
- Retail sales contracted 0.2 per cent in October (vs +0.9 in September)
While Oxford Economics sees a rate rise in the relatively near future, the market had wholly dismissed that by the start of this week.
So too is the Australian market landscape discounting the liklehood of a rate rise in May of 2024.
Probability odds on that outcome are also falling, per the ASX’s rate tracker, though not as drastically as the 98-vs-2 per cent read seen on Tuesday morning.