Detailed note from the Commonwealth Bank of Australia on what they expect from the Reserve Bank of Australia.
In summary:
- Our base scenario sees the RBA begin to normalize the cash rate by the end of 2024 (we forecast in December the first 25 basis point rate cut)
- A stronger deflationary pulse than the RBA expects is a necessary condition for the Board to ease policy this calendar year.
- The September quarter consumer price data already released in a range of surveys gives us greater confidence that the much-desired disinflation process has gained momentum recently.
- But it will be up to the Q324 CPI, due for release on October 30, to confirm that our assessment of the current pace of inflation is correct.
- The RBA’s board will be more willing to begin interest rate normalization if inflation proves less persistent than previously assumed.
CBA takes a detailed look at 7 indicators of inflation. As I said, it is detailed, but very briefly:
- The Melbourne Institute’s measure of inflation fell sharply
- NAB’s final price gauge fell further in September
- Output prices in the S&P/Judo PMI return to the pre-pandemic rate in September
- Growth in advertised rents fell sharply
- The ABS’s monthly Consumer Price Index (CPI) recorded a welcome decline in August
- The CBA internal wage model was rejected
- Consumer inflation expectations are also heading downward
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Update: The Australian dollar, opened lower after information from China over the weekend was disappointing, has yet to really bounce back:
- China provides few details about the stimulus at a press conference on Saturday
- Four of China’s largest state-owned banks have confirmed mortgage interest rate cuts, effective October 25
- China’s September CPI fell below August and below expectations. The producer price index fell further.
This article was written by Eamonn Sheridan at www.forexlive.com.