Steady inflation in Australia. The RBA seen on hold now – UOB

Economist Lee Sue Ann at UOB Group assessed the recent Australian inflation figures and sees the RBA refraining from acting on rates for the rest of the year.

Key Quotes

“Australia’s CPI came in at 0.5% q/q for 3Q19, lower than the 0.6% q/q in the previous three months, but in line with expectations. On a yearly basis, inflation advanced 1.7% y/y, slightly higher than 1.6% y/y in the previous three months, and also in line with expectations”.

“Of more importance to interest rates, the Reserve Bank of Australia (RBA)’s trimmed mean was up 0.4% q/q and 1.6% y/y, similar to the readings in 2Q19. The RBA’s weighted median was up 0.3% q/q, down from 0.4% q/q in 2Q19. For the year, it was 1.2% y/y, slightly lower than the revised 1.3% y/y reading in 2Q19. As shown in the chart below, underlying inflation has been anchored under the RBA’s 2% to 3% target band since early 2016”.

“Earlier this month, the Reserve Bank of Australia (RBA) slashed its official cash rate (OCR) by 25bps to a record-low of 0.75%. This was the third cut this year as the RBA tries to push the unemployment rate lower, and inflation and wage growth higher. RBA Governor Phillip Lowe explained that although the “outlook for the global economy remains reasonable, the risks are tilted to the downside”, with the US–China trade dispute affecting global trade and businesses scaling back their investment. Lowe added that it was “reasonable to expect that an extended period of low interest rates will be required”, and that the RBA is “prepared to ease monetary policy further”.

“Although (the) inflation report remains weak, it is unlikely to rock the boat when it comes to the near-term outlook for monetary policy. September’s employment report was also a positive sign for the RBA. This reinforces our view… that the RBA can afford to remain on a “wait-and-see” approach. Barring any major negative shocks, we look for a steady OCR of 0.75% for the rest of this year. The next RBA meeting is 5 November”.