Nomura still expecting another Reserve Bank of Australia rate hike, but not until November

Nomura with remarks on yesterday’s inflation data from Australia and what the implication is for the Reserve Bank of Australia.

Analysts at the bank say the inflation number was a “pleasant surprise”, but do warn that with Australia’s unemployment rate “remaining below NAIRU, monetary policy is not appear especially tight, other central banks are still hiking and we think the RBA would be equally sensitive to any future upside inflation surprise, given the forecast protracted delay in returning inflation to the target band”

Nomura are now expecting another rate hike from the Reserve Bank of Australia in November 2023.

—

The CPI data ICYMI:

• Australian Q2 Headline CPI 0.8% q/q (vs. 1.0% expected)

Responses:

• Goldman Sachs lowered their terminal RBA rate forecast to 4.6% (previously at 4.8%)

• AUD – decline in inflation should be enough to keep the RBA on hold at their next meeting
• ICYMI – NAB changed forecast for RBA next week to ‘on hold’ (prior was +25bp rate hike)

The rates hike cycle so far.

—

As a ps, if you are unfamiliar with ‘NAIRU”.

NAIRU stands for Non-Accelerating Inflation Rate of Unemployment.

• It is a concept in macroeconomics that refers to a specific level of unemployment that the economy maintains without causing inflation to increase. This level is often estimated rather than specifically defined, and it can vary between different economies and over time.
• The NAIRU theory suggests that if unemployment falls below the NAIRU level, excess demand for labor will lead employers to raise wages. However, higher wages can lead to higher production costs and, consequently, higher prices for goods and services. This can cause inflation to rise (accelerate).
• Similarly, if unemployment rises above the NAIRU level, there’s less demand for labor, which can lead to lower wages, lower production costs, and slower inflation.
• Some economists argue that it’s difficult to accurately estimate the NAIRU level and question the simplicity of the relationship between unemployment and inflation. Others believe that policy makers shouldn’t use NAIRU as a primary guide for monetary and fiscal policies due to its uncertainties and potential for error. In practice, central banks and other policymakers often use their estimated NAIRU level as one factor in their decisions, alongside many other economic indicators, to set interest rates and other economic policies.

This article was written by Eamonn Sheridan at www.forexlive.com. Source