Australia weighs rate hike in September — ABC News Australia
In Australia, the Reserve Bank of Australia (RBA) is due to make an interest rate decision at its meeting on September 29. According to ABC News Australia, traders put the probability of a rate hike at 87%, according to LSEG data. Among the country’s four largest banks, only NAB sees a September hike as the baseline scenario, while the other three expect the RBA may postpone such a move until November.
Inflation and growth
An argument in favor of a rate hike is inflation exceeding the RBA’s 2–3% target range. The annual consumer price index fell from 3.8% to 3.5% in July, but came in above economists’ forecasts. The trimmed mean measure, which the RBA uses to assess underlying inflation, remained at 3.6%.
Growth in services prices also remained above the target range, which economists believe indicates domestic inflationary pressure. Over the 12 months to June, Australia’s economy grew by 2.1%, slightly above expectations. The RBA estimates potential growth at about 2% due to low labor productivity.
One factor behind the activity was increased business investment, primarily in artificial intelligence projects and data center construction. Strong demand for workers and technical specialists for such facilities, according to ABC’s assessment, is also affecting construction inflation.
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Labor market and housing
Australia’s situation differs from that of the United States: the RBA has already raised rates three times this year. At the same time, Australia’s seasonally adjusted unemployment rate rose from 4.1% at the start of the year to 4.5%, while in the United States it fell from 4.3% to 4.1%.
An additional risk to the economy is a downturn in the housing market, where variable-rate mortgages are widespread. Betashares chief economist David Bassanese warned that further rate hikes could intensify pressure on house prices and slow consumer spending and residential construction. HSBC chief economist Paul Bloxham forecasts that house prices nationwide will fall by 13% from peak to trough.
Some economists believe the RBA should wait for full data for the September quarter, which the regulator considers more reliable than the relatively new monthly inflation readings. Australia’s policy rate has not been at 4.6% or higher since 2011.
