Financial markets are overwhelmingly confident the Reserve Bank governor, Philip Lowe, will use his final board meeting to leave the cash rate unchanged for a third month at 4.1%.
Lowe began as governor in 2016 with a lengthy interest rate plateau and economists say he will likely bequeath his successor, Michele Bullock, a similar spell of monetary policy monotony.
Nab is alone among the big four banks to tip another rate rise during this cycle, with that hike to 4.35% to come on 7 November. Investors, though, are betting on a lengthy pause.
“The market is effectively pricing no further hikes or cuts for a year,” said Jonathan Kearns, who headed several key RBA departments before leaving in February to become chief economist at Challenger. “But with the rate not going as high as in other countries, it is likely to take longer before it can be cut.
“So it’s a rate plateau, not a peak,” Kearns said.
Lowe oversaw 29 consecutive board meetings that left interest rates unchanged when he commenced his stint as RBA chief. To match that passivity, Bullock would have to stay put for about half her seven-year tenure, given the central bank will in 2024 reduce the number of rate meetings to eight a year, from 11 now.
Nab’s view that the RBA has one more rate rise to come hinges on expectations “the flow of data over the third quarter will be enough to see them act on their modest tightening bias”, said Taylor Nugent, an economist with the bank’s markets division.
The June quarter numbers, though, could produce a slower-than-expected gross domestic product growth result. The Australian Bureau of Statistics on Monday released sharply weaker data for company profits, wages and inventories that may nudge quarterly GDP growth into negative territory – and discourage any RBA rate increases.
“While we were looking for a sharp drop in profits, the 13.1% fall surprised even us,” said Adam Boyton, the head of Australian Economics. Mining profits sank 2.13% compared with the March quarter, while non-mining firms reported a 5% profit drop.
Private inventories fell 1.9% in the quarter alone, compared with a market consensus of a 0.4% increase. Nab’s Nugent estimated that result alone will shave a full percentage point from quarterly GDP growth, or more than triple the 0.3 percentage point previously expected.
Wages and salaries rose 1.8% for the quarter after a 1.9% increase in the March quarter. “While strong, these results are a step down from the very strong outcomes seen over the second half of last year,” ANZ’s Boyton said.
By industry, the largest wage increases were for arts and recreation, advancing 5% in the quarter, with real estate services up 3.9% and education and utilities both rising 3%, CBA said. The wages bill in accommodation and food services fell 1.5%.
The ABS will release more June quarter numbers on Tuesday – for public demand and trade – while the RBA board is meeting that will offer more insights of the economy’s momentum. The full June quarter national accounts land on Wednesday.
Other ABS data out of Monday provided mixed signals for the RBA to consider. Household spending fell 2.8% in July from June to o.7% lower than a year ago. The retreat is greater once the 4.9% annual consumer inflation rate is deducted.
“This is the first time since February 2021 that the spending indicator has fallen,” said Robert Ewing, the ABS’s head of business statistics.
Outlays for discretionary goods and services slumped for a fourth consecutive month to 3.3% lower than a year earlier. The 1.7% increase in non-discretionary spending was the weakest pace since early 2021, Ewing said.
Should the month-on-month weakness in spending continue, it would signal “a much weaker consumer outlook than we are expecting”, UBS economists said.
Job advertisements, meanwhile, continued to show “surprising resilience”, according to ANZ, which compiles the monthly survey with Indeed, a consultancy. Employers lifted their ad tally by 1.9% in August, bringing the two-month gain to 2.6%, pointing to strength in the labour market.
Gloom about job losses might be overdone if the latest @ANZ_research with Indeed is any guide: pic.twitter.com/sreQZVCHx9
— @phannam@mastodon.green (@p_hannam) September 4, 2023
While down almost 8% from September 2022, job ads remain well above pre-Covid levels.
There are also about 180 job openings per unemployed person, a promising prospect for Lowe as he starts looking for his first new job since entering the RBA from university in 1980.
