RBA drops rates hint as Australia maintains AAA status
Australia’s AAA credit rating has been pegged as the Reserve Bank of Australia governor downplayed a surprise rise in unemployment.
Ratings agency Fitch maintained its full rating on the country’s finances on Tuesday, citing Australia’s strong institutions, resilient growth outlook and improvement in government deficits.
Chancellor of the Exchequer Jim Chalmers and Chancellor of the Exchequer Katy Gallagher said the call was “strong support” for Labour’s economic management.
“We are realistic about the challenges facing our economy, including increasing global uncertainty, but our AAA rating is further evidence that Australia is approaching these challenges with real economic strength,” they said in a joint statement.
While Australia maintains a perfect credit rating across three rating agencies and is one of nine countries to achieve this feat, Fitch said productivity problems continued to hamper the economy.
Fitch stated that despite the surprise increase in unemployment in September, the unemployment rate remained relatively low at 4.5 percent.
The RBA forecast two more rate cuts, one in 2025 and another early next year, with inflation expected to remain within the central bank’s two to three per cent target range, the agency said.
Speaking at the Australian Business Economists’ annual dinner in Sydney on Monday, Reserve Bank governor Michele Bullock was relatively unimpressed by the rise in unemployment.
Ms Bullock said jobs figures were inherently volatile, but signs suggested the job market was still somewhat tight and was not about to “fall off a cliff”.
Money markets are pricing in a more than 50 percent chance of a 25 basis point cut next week, but a significant inflation reading on Wednesday could prompt the central bank to ease further.
Analysts expect the RBA’s preferred truncated measure of average inflation to come in above the central bank’s forecast and potentially above its target range.
Ms Bullock said a 0.9 per cent quarterly rise in headline inflation would be a “significant miss” on the RBA’s forecast, in line with forecasts by economists at NAB.
Given the RBA is willing to wait for some more data on the labor market, NAB expects the cash rate to remain steady at its November meeting.
“It’s taking some time for the RBA to regain confidence that inflation will settle around 2.5 per cent,” NAB Australia chief economic officer Gareth Spence said.
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