Monetary Policy Watch:
Steadfast Amidst Rate Hike Speculation
On June 18th, the Reserve Bank of Australia (RBA) held fast to its cash rate at 4.35% for the fifth consecutive meeting, echoing a stance of vigilance in stating that rate hikes remain a distinct future possibility. Despite this, the Australian dollar barely flinched against the US dollar and sensitive three-year government bonds echoed this stoic response while the stock market tread an upward path.
Inflation and Economic Growth:
A Dual Mandate of Control and Maintenance
The RBA’s commitment remains twofold: to curb the rise in consumer prices and to preserve the remarkable job growth seen post-pandemic. The rate-setting Committee has acknowledged the mix of recent economic data and emphasized the importance of vigilance toward inflationary risks. The Board anticipates navigational adjustments based on forthcoming data and evolving risk assessments.
Market Movements:
Calm Waters in the Currency and Bond Markets
Following the announcement, the AUD held its ground at 0.6605 USD, and yields on policy-sensitive three-year bonds remained unchanged, signaling market confidence in the RBA’s cautious stance amidst global economic headwinds.
The Global Context:
Insights Before the Meeting
Ahead of Australia’s monetary policy meeting, the Federal Reserve made an anticipated stance last week when Chairman Jerome Powell intimated reluctance to relax monetary policy, even following tepid inflation reports.
Economic Outlook:
Projected Modest Growth Amidst Challenges
Fitch Ratings has put forth a modest growth projection for Australia’s economy at 1.2% for the year, citing restrictive monetary policy and sticky inflation as persistent dampers on domestic demand. They also underlined that the conspicuous downward revision of the household saving rate in recent GDP data anticipates less consumer spending from savings than previously expected. Inflation has been a thorny issue with the quarter’s headline inflation rate reaching 3.6%, surpassing the forecast set by the RBA and likely maintaining its prominence as a key issue. Fitch anticipates a modest rate cut by the RBA in November, with an easing policy likely to take a more defined shape by 2025.
