RBA on hold for July & factors to consider
Looking ahead to 2:30pm we are in the camp that the RBA will leave rates on hold however we are of the firm belief we will see a rate cut in August. Of more importance will be the language they use in the statement to accompany the decision. The RBA in recent months has focused closely on weakening inflation in Australia. With official CPI data not released till July 27 and a surprise read yesterday by the Melbourne Institute that showed inflation growing an usual 0.6% for June, assisted by a large rise in travel, accommodation and fuel.
With so much uncertainty on the local front with the election and the possibility of a hung parliament this may also be a consideration for the RBA to take a conservative wait and see approach. Combine this with Brexit and the possibility of the Bank of England making a move will likely add to the conservative approach by the RBA.
But unlike other central banks worldwide, the RBA is in a position where they do have room to move and cut rates. Other factors that they will be watching closely include:
- The strength of the Australian dollar particularly in relation to added strength from any moves in the EU.
- The U.S Federal Reserve’s reluctance to raise rates as well as the U.S Presidential election in November
- Speculation of our local AAA credit rating being in jeopardy
- Altair’s Chief Economist Steve Roberts also points to another potentially destabilizing event in China, with an apparent rift developing in the upper echelons of the Community Party in China, with a sharp difference of opinion between the President & Premier about handling economic issues especially given an already slowing economy in our largest trading partner, this may be front of mind for the RBA to consider.