Fin-X Rapid Response December 9th

The RBA left the overnight cash rate on hold at 3.6% today, as widely anticipated. However, the statement was more hawkish in response to recent developments ahead of the summer break.

• The overnight cash rate was held at 3.6% today

• On inflation, the governor said, "While inflation has fallen substantially since its peak in 2022, it has picked up more recently. The Board’s judgement is that some of the recent increase in underlying inflation was due to temporary factors and there is uncertainty about how much signal to take from the monthly CPI data given it is a new data series. Nevertheless, the data do suggest some signs of a more broadly based pick-up in inflation, part of which may be persistent and will bear close monitoring."

• On growth, "Economic activity continues to recover. Growth in private demand has strengthened, driven by both consumption and investment. Activity and prices in the housing market are also continuing to pick up. Financial conditions have eased since the beginning of the year, credit is readily available to both households and businesses and the effects of earlier interest rate reductions are yet to flow through fully to demand, prices and wages. On the other hand, money market interest rates and government bond yields have risen more recently.

• "Various indicators suggest that labour market conditions remain a little tight" [...]

• "There are uncertainties about the outlook for domestic economic activity and inflation and the extent to which monetary policy remains restrictive. On the domestic side, the pick-up in momentum has been stronger than anticipated, particularly in the private sector. If this continues, it is likely to add to capacity pressures. Uncertainty in the global economy remains significant but so far there has been minimal impact on overall growth and trade in Australia’s major trading partners."

• "The recent data suggest the risks to inflation have tilted to the upside, but it will take a little longer to assess the persistence of inflationary pressures. Private demand is recovering. Labour market conditions still appear a little tight but further modest easing is expected. The Board therefore judged that it was appropriate to remain cautious, updating its view of the outlook as the data evolve."

• S&P/ASX200 8,601 -0.3%, AUDUSD 0.6621 -0.1%, Aus 10yr 4.72% +2bps

  
  

  Fin-X View

  
  

• The governor covered a lot of bases with today's statement without many surprises.

• In fairness, there have been improvements in the growth outlook accompanying the recent uptick in inflation. It is probably too soon to tell whether they will persist.

• When the Board returns from the summer break, they will have the benefit of updated forecasts, as well as a much better picture of the US economy as delayed data releases catch up.

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