The Reserve Bank puts its faith in the immaculate disinflation


The Reserve Bank (RBA) Board left the cash rate unchanged for the second straight month at 4.10%. Over the last five months the RBA has left rates on hold on three separate occasions. This shows that we are at or near the cash rate peak. It also shows that the Reserve Bank is becoming more confident that they have done enough to bring inflation down to the 2-3% target. The Reserve Bank’s forward guidance suggests that the incoming data would need to convince the Board that inflation is deviating from its disinflationary path to trigger further hikes. We see the economy slowing further from here under the weight of higher interest rates. This means we do not expect to see the Reserve Bank to hike again this cycle.

The Reserve Bank puts its faith in the immaculate disinflation (2:22)

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The disinflationary process that has been underway for some time overseas is working its way through the Australian economy as inflation continued to slow in the June quarter.
Inflation slowed to 5.6% in May, from 6.8% in April. However, underlying inflationary pressures barely budged when stripping away volatile items and holiday travel. This complicates the picture for the RBA and suggests more tightening may be required.


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