Key Points
- Experts predict the RBA will keep interest rates on hold at 4.1 per cent.
- It would mark a third successive month of paused rates.
- Easing inflation data will contribute to the decision.
With inflation data having eased slightly, many economists are expecting the Reserve Bank of Australia (RBA) to leave interest rates on hold at 4.1 per cent in its October meeting.
After lifting interest rates from a record low of 0.1 per cent since May last year, two consecutive pauses in July and August have fuelled hopes its tightening cycle is done.
Tuesday's announcement will be the last monthly meeting with Philip Lowe as RBA governor, with deputy governor Michele Bullock to take over on 18 September.
A survey of 38 experts and economists by comparison site Finder found all but one expect the central bank to do nothing in September.
A majority, or 66 per cent, believe the cash rate has peaked.
Source: SBS News
Bloxham believes the central bank will maintain a modest tightening bias, however, after it recently made it clear it was keeping its options open in the months ahead.
But economic data over the past month points to no change in September, with the job market showing signs of softening and wage growth remaining steady in response.
The monthly consumer price index fell from 5.4 per cent in June to 4.9 per cent in July.
Bloxham said the downward trajectory for consumer price inflation was good news for the RBA.
"However, core inflation still remains too high, with some areas of persistent price pressures, such as rents, and other services prices, key upside risks," he wrote in a client note.
A slowing Chinese economy was also likely to feature in the board's discussions on Tuesday, he said.
In the statement that accompanied its August meeting, the RBA displayed more comfort around the inflation outlook, noting that while inflation remains "still too high at 6 per cent", recent data is "consistent with inflation returning to the 2-3 per cent target range over the forecast horizon" based on the condition that productivity growth "picks up".
Last week, the monthly CPI indicator showed that more progress is being made towards reducing inflation, market analyst Tony Sycamore from IG Markets told SBS News.
"Last week's softer-than-expected inflation number, combined with an increase in the unemployment rate to 3.7 per cent, tame wage growth, and an expected slowing in GDP growth on Wednesday, will see the RBA keep the cash rate on hold on Tuesday at 4.1 per cent," Sycamore said.
"However, looking beyond this inflation remains too high, and we expect that some fine-tuning of monetary policy will be required, which will see the RBA lift the cash rate to 4.35 per cent in November."
What can we expect with a new RBA governor?
While there is an element of uncertainty coming from the end of Lowes' term, "the RBA has proved somewhat difficult to read in 2023 with economists having a much lower success rate predicting the outcome of RBA meetings in contrast to other central bank meetings," Sycamore said.
The market will be hoping that the incoming governor follows the path that Lowe has followed "in prioritising returning inflation to target while keeping the economy on an even keel, albeit with a little less unpredictability," he said.
Additional reporting by Madeleine Wedesweiler
