It is a fact of Australia’s economic landscape I feel goes too often forgotten that after cutting rates 3 times last year, we’ve since had to raise interest rates 3 times, back to where they were before the first slash.
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That doesn’t necessarily scream Australia is on the way forward in its battle against inflationary forces. Indeed, Australia’s answer to core inflation – Trimmed Mean Inflation (TMI), which excludes food and fuel prices – is at 3.6%, well above the RBA’s ‘target band’ of 2-3%.
That seems to suggest, then, we’re not out of the inflationary woods yet. But Tuesday’s decision to keep rates on hold was widely expected going back to last week, and so the market hardly budged.
At the time of writing, heading into the final hour of trade, the XJO was up three tenths of a percent where it had been for more or less most of the day, shrugging off even a fresh surge in oil prices.
Part of that is because oil prices drove up Woodside; part of it is probably because gold is back above US$4,400/oz as at 3.15pm AEST.
But one good (enough) day on the local market does not an accurate snapshot of Australia’s economic trajectory make.
Since the decision was made on Tuesday, IFM Investors chief economist Alex Joiner has described the hold as “hawkish,” ultimately spelling out a scenario where the RBA is far from a position where it can say it doesn’t need to hike rates again. (Read: they’re cautiously calling a rate hike to come.)
BlackRock Australia’s fixed income head Katherine Palmer has put out her view the RBA is essentially pausing so that it can further assess what may or may not need to be done, which is another way of saying the RBA Board isn’t sure whether or not it needs to hike rates in the midst of the Middle East situation which remains very much fluid. Indeed, oil price charts have reflected choppy seas of late.
KPMG’s chief economist says the RBA has ‘left the door open’ for another hike; and VanEck’s head of markets Russel Chesler has also voiced his opinion the market is undercooking the possibility of another hike.
I could go on, but by this point a clear consensus is starting to form – the boffins of the finance world are vaguely anticipating another hike from the RBA yet, but, it’s not clear when it will come, nor what could trigger it.
The job market remains fairly strong despite a small rise in unemployment earlier this year, and so it appears no shock relief will come from the jobs market anytime soon.
In the background of all of this is Australia’s rapidly slowing property market, perhaps best exemplified in Westpac‘s Monday earnings where it revealed mortgage applications dropped by -20% in Q3, largely seen as a response to the recent CGT changes in the most recent Federal Budget.
And the impact of that on the housing market could be what the RBA is holding in order to assess – it’s an open secret both despised and celebrated that much of Australia’s inflationary upside is coming from housing. That’s been the case for years.
But it appears there are tangible beliefs held in the minds of professionals Australia’s central bank is yet to boost the interest rates a little higher yet.
But with a market quite clearly bored (on a vibes-based analysis) of the war in the Middle East, maybe a future hike could be something the zeitgeist also learns to ignore. This finance journalist has heard from at least one Diggers attendee that when it comes to geopolitical strife in the Middle East, ‘most of the room would like to move on.’
Food for thought.
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