RBA Governing Council: Fourth Consecutive Rate Hike to 50bps
2022-09-01
■Consumer spending remains strong despite rising prices and rising interest rates, but the slowdown in the housing market intensifies
■Cut rate hike pace to 25bps at October board meeting or focus on 6th statement and August employment data
The Reserve Bank of Australia (RBA) will meet on September 6th. In a board statement on Aug 2rd, the board said, "policy normalization will continue in the coming months, but the path forward has not been determined in advance." July retail sales hit a record A$34.7 billion (up 1.3% month-on-month), which confirmed strong consumer spending. In the labor market, employment fell for the first time in nine months for the month, but the Bureau of Statistics said the Covid-19 crisis affected school winter breaks and worker absenteeism. The unemployment rate improved to 3.4%, its lowest level in 48 years, and the underemployment rate for short hours and underemployment fell to 6.0%. In addition, the government will raise the minimum wage in July. In the future, wages will gradually increase by industry, and inflationary pressure will increase. On the 6th, the board meeting decided to raise interest rates by 50 basis points for the fourth time in a row. The policy rate is expected to be raised from 1.85% to 2.35%.
According to market forecasts, the real GDP in the April-June quarter announced on the 7th is expected to grow by 1.2% month-on-month, and the growth rate is expected to be faster than the previous quarter (up 0.8%). But soaring prices and rising interest rates have weighed on growth. The housing market has slowed down significantly. The number of housing construction permits in July fell by 17.2% month-on-month, and the core logic price in August fell by 1.6% month-on-month. The RBA's statement on the 6th will be closely watched along with August employment data released on the 15th to determine whether the board will reduce the rate hike to 25 basis points at the board meeting after October. The terminal rate, which is the final destination of the policy rate, is expected to peak at around 3.85% in April and May 2023. The Reserve Bank of Australia is likely to reiterate the need for further rate hikes to dampen inflation expectations.