RBA Review: Waiting to ease

The RBA kept the cash rate on hold at 4.35% as the current inflation picture does not support any change of monetary policy. The forward guidance statement has changed to "The Board will continue to rely upon the data and the evolving assessment of risks to guide its decisions.", suggesting the RBA is patiently waiting for the CPI to rotate till their target range before any action. While Q2 CPI came in higher at 3.9% y/y, the latest monthly CPI is showing moderation and we believe target range maybe met by year end 2024. RBA has acknowledged the growth of Australia to be weak and easing wage pressure. To keep a balanced dynamic, the RBA will likely begin easing once headline CPI touches the upper-bound of target range to cushion the weak economics growth. There is not much changes since the last meeting in terms of forecast or economic development.

The decision aligns with RBA's rhetoric of being data dependent and patient in assessing the cumulative effect of tightening while keeping a close eye on inflation dynamics. RBA will prefer not to further tighten after soft GDP with sluggish consumption growth. But the latest revival of inflationary pressure has forced RBA to announce their push back in early easing. The household balance sheet continues to be restricted by mortgage cost and inflationary living pressure, while business are facing the tightest financial conditions in months, alongside peaking labor market even as the Australian economic growth being stronger than market consensus. However, the higher than expected inflation also does not allow the RBA to perform any easing in coming months. 

The RBA did not change their inflation forecast and seems to be content with the trajectory of inflation by seeing 2-3 percent in late 2025 yet we maintained our forecast of terminal rate to be 4.35% and now only see one 25bps easing by year end 2024.