RBA Stands Pat and Apart

As expected, the Reserve Bank of Australia (RBA) held the cash rate steady at 4.35 per cent today. With a persistently tight labour market and core inflation remaining uncomfortably high, the RBA had little option but to maintain its current stance. 

The RBA seems to favour making its moves late in the game. It was one of the last central banks to start hiking rates post-pandemic, and now appears likely to be among the last to begin easing. While the RBA will continue to monitor global trends, particularly the actions of the US Federal Reserve, it's clear Australia is not moving in lockstep. 

Recent communications from RBA officials, along with today’s press release, indicate that the focus has shifted from headline inflation to core inflation, which remains stubbornly high—much to the RBA’s frustration.

On the labour market front, there appears to be a disconnect between declining hiring intentions from what we hear on the ground and robust employment growth figures. The sharp rise in part-time jobs last month likely reflects the seasonal influx of students starting university in the July/August term, a trend that may taper off in the final quarter of the year, potentially nudging the unemployment rate higher.

We believe the policymakers are aptly concerned about the evident weakness in economic growth and mindful of the downside risk this poses to their policy decision while being acutely aware of the next data prints likely showing improved economic performance as the fiscal spending outlined in the Federal Budget gain traction.

That said, it's now a matter of waiting and watching. Whether this year’s Melbourne Cup Day meeting will deliver another surprise, as it did last year, remains uncertain—but a shift toward easing still feels some way off.