Cup Day forecasts to bring intrigue, rate cut off cards
Analysts have largely ruled out further mortgage cuts on Melbourne Cup Day, but updated economic forecasts may hold the answer to where the bank will go next.
With inflation on the rise again, the majority of market economists and bond traders predict the Federal Reserve will keep the cash rate steady at 3.6 percent when its monetary policy board releases its lock on Tuesday.
Richard Holden, chief economist at Chartered Accountants, said last week’s surprise rise in inflation meant the RBA would “absolutely” leave interest rates on hold.
Headline or adjusted average inflation, the central bank’s preferred measure, rose by one per cent in the September quarter, significantly above the bank’s forecasts, Central Bank Governor Michele Bullock said.
Professor Holden said the RBA’s move now appeared premature after it cut interest rates as soon as headline inflation returned to its two to three per cent target range.
“I think they’re in a stalemate and the Australian economy is in a rut,” he told AAP.
“Unemployment is rising, but inflation is (at the same time) rising, and if there is another rise in inflation… then they might have to start raising rates, which would be a signal that they have grossly misread the game.”
While there is little chance that the RBA will leave financial markets largely unprepared by cutting or increasing interest rates, the main source of interest for analysts will be the tone of Ms Bullock’s post-meeting media conference and the bank’s updated Monetary Policy Statement.
The quarterly statement updates RBA staff forecasts on key economic data.
Forecasts for economic growth, unemployment and especially inflation will be closely scrutinized as major revisions will provide greater clarity on whether borrowers can expect another cut.
Ms Bullock is likely to point to ongoing concern about rising unit labor costs, a key indicator of rising inflation due to Australia’s slow productivity growth.
After the initial rise in inflation, which was driven mainly by foreign factors, the latest rise in inflation appears to be mostly domestic in origin and more difficult to mitigate.
“This looks like domestic production, particularly in the services sector, and I think it reflects abysmal productivity outcomes and still quite strong wage growth,” Prof Holden said.
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