The RBA has now paused twice in the past four months. This downshift in action increasingly reflects the balance of forward-looking data. While the labour market remains tight, consumer unemployment expectations, business forward orders and job ads collectively suggest a modest uptrend in unemployment over the coming months.
Anecdotal evidence (and ANZ’s own spending data) also suggests recent rate hikes have had an impact on consumer behaviour. Upcoming second-quarter consumer price index data should be sufficiently consistent with the RBA forecasts to not sway the August decision.
While the RBA will likely lift its wages forecasts in the coming August Statement on Monetary Policy, it may see any upside risk for consumer price inflation as having already been mitigated by the rate increase in June.
Whether a single 25-basis-point rate rise is sufficient to offset that risk is the question. While individual rate increases do matter, especially for mortgage holders, the impact of a single 25-basis-point move on an entire economy over a 12 to 18-month period is quite modest.
By the same token one can also argue the reverse. Namely, if the RBA felt its action to date had not dealt with that risk, then why not move in July?
On balance, ANZ Research expects an extended pause at the current cash rate of 4.1 per cent.
Adam Boyton is Head of Australian Economics at ANZ
This is an edited version of the ANZ Research report “Change in RBA call – an extended pause at 4.1%”, published July 14, 2023.