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AUD: CBA maintains base case December RBA 25bp rate cut – see firmer disinflationary pulse

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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.

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