Quick Bites | What will the RBA Do?

On the 7^th of August, the RBA decided to leave rates unchanged at 4.35%. This was what the market expected, and share markets, bonds and the currency were relatively unmoved by the news. Below, we show a chart produced by MST Marquee which forecasts no cuts until 2025, and then 3 cuts commencing in February. That seems a reasonable forecast to us.

RBA Governor Michelle Bullock noted in her post-meeting press conference that near-term (to the end of December) rate cuts were not consistent with the RBA’s forecast. Market pricing going into the meeting was for around 40-50bp of rate cuts by December. Bullock also stated that “…a rate rise was a serious consideration”. Whether that is an example of “jawboning” the market or should be taken seriously is a hard call. 

When asked about the recent global volatility, Bullock waved it off as an “over-reaction” to the US employment data and said it didn’t play a part in the decision to keep rates on hold. The RBA has finessed its inflation forecast and Bullock noted that if it doesn’t get into the band by the end of 2025, then the RBA will have some hard decisions to make. 

The theme in Bullock’s presser was that demand remains excessive. She noted continued strong demand for services was keeping inflation elevated. However, it is possible that a significant proportion of services inflation is driven by excess demand by savers, not borrowers – and this would hardly diminish if rates were higher. 

RBA nominal and real cash rate with MST Marquee forecast:

Source: MST Marquee