Australian Dollar: RBA set to hold amid inflation risks - BNY
BNY’s Geoff Yu and David Tam expect the Reserve Bank of Australia (RBA) to keep rates unchanged at 4.35%, noting that markets doubt its willingness to hike despite persistent inflation and robust labor and spending data.
The Reserve Bank of Australia (RBA) is poised to maintain interest rates at 4.35%, according to BNY analysts Geoff Yu and David Tam. Markets question the RBA's willingness to raise rates despite sustained inflation and strong labor and consumption figures. Housing weakness, the absence of commodity price support, and poor productivity are cited as structural setbacks, suggesting a prudent 'do no harm' stance from the central bank.
While the RBA is expected to retain its interest rate, uncertainty persists regarding the trajectory of inflation. Market confidence in the bank's capacity to increase rates wanes as stagflation exerts pressure on the economy. Despite this, sentiment metrics indicate a contrasting narrative: the housing sector, marked by a broad-based weakening, weighs on demand due to wealth inequality.
Productivity issues persist, with even the S&P warning that falling GDP growth per capita poses a significant risk to Australia's credit rating.
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