The next big move in Aussie interest rates
The RBA held rates today, as I expected and reported in my previous note (Rising Australian interest rates might be near peak). The stage is set now for a wait and see approach, probably until March next year.
I still think that rates have peaked, and we will continue to see soft economic activity, moderating inflation and rising unemployment over the next few months. Things will start to change around June-September next year, when the RBA realises that they have pushed too hard and will probably need to cut.
I go through these points and others in the video. If you don’t have time to watch, my points are:
RBA's Current Stance: Despite expectations, the RBA maintains its current position. This decision aligns with the recent economic data, including retail sales numbers, indicating a gradual economic shift.
Retail Sales Analysis: The latest retail sales figures show a 0.2% drop, signifying a downturn contrary to expectations. This decline, occurring in a robust employment environment with high inflation, raises crucial questions about the economy's foundational strength.
Property Market Stability: The RBA's December statement reveals a shifting focus. Moving away from concerns about the property market, the RBA acknowledges the market's resilience, with rising housing prices indicating a stable sector.
Inflation and Economic Confidence: The RBA shows increased confidence towards moderating inflation, expecting this trend to begin early in 2024. This optimism stems from signs of economic slowing, potentially leading to a moderation in inflation rates.
Future Economic Indicators: The anticipation is that by mid-2024, changes in the economy will become more apparent. The rise in unemployment around March or April, coupled with other economic indicators, may prompt the RBA to reassess interest rates, leading to potential adjustments.
The RBA's end-of-year assessment paints a picture of cautious optimism. With the economy showing signs of slowing down, the focus shifts to how these changes will influence interest rates, inflation, and the broader Australian market in 2024. The property market's resilience, coupled with the anticipated economic moderation, suggests a dynamic yet stable period ahead.
Peter Esho is an economist and Founder of Esho Group. He has 20 years of experience in investments and markets.