Reserve Bank of Australia Expected to Hold Interest Rates at June Meeting

Interest rates in Australia are expected to remain unchanged as the Reserve Bank of Australia (RBA) gathers for its meeting on June 18. The big four banks in Australia, including Commonwealth Bank of Australia and ANZ Bank, are predicting that there will be no rate cut until November. Senior economist Belinda Allen explains that the RBA’s latest forecasts are largely in line with the first quarter 2024 national accounts and labor market data. She also mentions that the federal budget was more expansionary than expected but doesn’t believe it will impact the RBA’s assessment of the economic outlook.

ANZ Bank economists agree with this prediction, stating that upward revisions to household consumption in the national accounts will lead to the Board describing consumer spending as less weak than previously thought. They also note that recent fiscal cost of living measures were not reflected in the RBA’s inflation forecasts in May but should not significantly impact core inflation. They highlight the welcome news of moderated U.S. inflation in May and improved inflation in April, which can sometimes influence Australian interest rate movements.

Westpac Banking Corp Chief Economist Luci Ellis believes that a rate cut in Australia is unlikely before November due to disinflationary pressures. She explains that even with a further moderation in trimmed mean inflation, it will take time for enough evidence to accumulate to convince the Board that disinflation is on track to reach the target range of 2 to 3 percent sustainably. She states that if inflation remains sticky above the target range, it could cause the RBA to push back the timing of its first rate cut.

The RBA is closely watching the Consumer Price Index (CPI) data due on July 31, according to NAB economists. They expect little change to the RBA’s guidance of not ruling anything in or out until this data is available. Governor Bullock has already mentioned that the RBA is waiting for this data to update their forecasts and assessment of risks. NAB economists also note that while there are two-sided risks to the RBA’s inflation forecasts, the bar for hiking rates is high due to restrictive policy, soft activity, and signs of easing in the labor market.

AMP chief economist Shane Oliver believes that rate cuts may still be six months away, with a possibility that they won’t take place until early next year. He acknowledges that Australian jobs growth has cooled and labor underutilization has increased, but he still considers the labor market to be relatively tight. Overall, the RBA is waiting for more data and evidence before making any decisions regarding interest rates.