You’d be forgiven for having a sense of deja vu today, given everyone was expecting a rate cut before the last RBA meeting in July.
Five weeks prior, Governor Michele Bullock and her monetary policy board surprised economists, traders, and borrowers by keeping the cash rate steady at 3.85 percent, despite the market’s near-unanimous expectation of a rate cut.
Rather than going down the once bitten, twice shy route, experts are once again expecting a cut today.
So why are they so sure this meeting will be different to the last?
It largely comes down to two important pieces of data we’ve received in between.
The primary factor was the unemployment rate, which, for the first time this year, showed an increase, rising from 4.1 to 4.3 percent as reported by the Australian Bureau of Statistics when the June figures were issued last month.
The second – and more important – was inflation.
Ahead of the July meeting, the RBA had only received monthly inflation data, which is not considered as reliable as the quarterly releases.
Bullock and her board were troubled by certain aspects of the monthly data, indicating that inflation might have been higher than the official figures suggested.
However, the release of the latest quarterly data last month brought unexpectedly positive news: headline inflation decreased to 2.1 percent, aligning with the lower end of the RBA’s target range, marking its lowest point since March 2021.
Simultaneously, the trimmed mean, which is the RBA’s favored indicator of underlying or core inflation, also declined to 2.7 percent. The trimmed mean had not been this low since December 2021.
Following Bullock’s statement that she wanted additional data before deciding to cut rates, it appears that the data she and her board have received is setting the stage to provide some relief today.
