Standard Chartered cut their RBA terminal rate forecast by 25 basis points

Standard Chartered were forecasting a 25bp rate hike at the Reserve Bank of Australia’s September and November meetings but have dropped the September rate hike forecast.

Are now expecting just one further rate hike of 25bp in November.

Stan Chart reasoning:

  • We still expect a hike in November as inflation – while it
    may have peaked – likely remains too high. There is little margin
    for error, in our view, considering the RBA’s already patient stance forecasting inflation to return to the upper bound of its 2-3%
    target only by 2025. Services CPI remains sticky.
  • The job market
    may have peaked but remains tight and should support wage growth.
    This, along with the monthly rise in home prices, may prop up
    spending, especially if households dip into their significant excess
    savings. The lack of a productivity pick-up may also increase unit
    labour costs, adding to inflation.
  • The last RBA
    policy meeting statement in August slanted dovish, noting that
    inflation was declining (versus inflation having passed its peak in
    July). On growth, the central bank indicated that the economy “is
    experiencing a period of below-trend growth and this is expected to
    continue for a while”. The meeting minutes were more balanced. The
    central bank pointed out that the cost of inflation being higher than
    expected was greater than the cost of inflation being lower than
    expected, even as risks to inflation were balanced. The RBA also
    retained the option to hike further.

The current RBA cash rate is 4.1% (see PCI above).

Of relevance today are the data for July inflation:

This article was written by Eamonn Sheridan at Source