RBA Keeps Rates Unchanged As Inflation Slows Down

August 01, 2023 22:17

In a week that will include the Bank of England (BoE) interest rate decision and the US Nonfarm Payrolls data release, the Reserve Bank of Australia (RBA) announced its decision to keep interest rates unchanged.

In China, factory activity fell into contraction territory for the first time in the last four months, according to the Caixin survey compiled by S&P Global. The Manufacturing PMI came in at 49.2 although a Reuters poll had forecast a 50.3 reading.

RBA Interest Rate Decision

The central bank of Australia decided to keep interest rates steady after its governing board meeting. Some economists had suggested that the RBA would raise borrowing costs by 25 basis points. The RBA has hiked rates several times since May 2022 reaching the highest level recorded in the last eleven years.

The RBA’s decision follows an inflation report that showed the country’s consumer prices growth rate falling to 6% in the second quarter of 2023. The figure remains well above the RBA’s target.

Commerzbank’s analysts suggested that the RBA is taking a wait-and-see approach for the time being. In their report, they wrote: “The RBA decided to keep interest rates on hold for the second time in a row. The RBA appears to be very close to the interest rate peak, especially as it now expects inflation to return to target within its forecast horizon. Of course, whether another rate hike will follow in the coming months will depend crucially on data developments, especially wage growth and service sector inflation. However, we see today's decision as a clear signal that the RBA is taking a wait-and-see approach for the time being.” 

ISM Manufacturing PMI July 2023

Later today, the Institute for Supply Management (ISM) will publish July’s Manufacturing PMI data. Economists expect the Manufacturing PMI to come in at 46.5, slightly higher than June’s reading. In June, the ISM report had mentioned that “the June Manufacturing PMI registered 46 percent, 0.9 percentage point lower than the 46.9 percent recorded in May. Regarding the overall economy, this figure indicates a seventh month of contraction after a 30-month period of expansion.”

Commenting on the June ISM report, ING’s analysts had noted that “the key sub-components such as new orders, production, employment and customer inventories are also all in contraction territory.” The Federal Reserve continues to monitor manufacturing and services PMI, reviewing the effect of monetary policy tightening measures on the US economy.

Eurozone CPI Inflation and GDP July 2023

According to a flash estimate published by Eurostat, consumer price inflation dropped to 5.3% in July 2023, down from 5.5% in June. Core inflation, which strips out energy, food, alcohol and tobacco, was unchanged at 5.5%. GDP across the euro area grew by 0.3% in the second quarter of the year, having stagnated earlier in 2023.

Analysts at Deutsche Bank Research reported that “Q2-23 Euro area GDP has surprised slightly to the upside at 0.3% qoq while July flash inflation came in broadly in line with expectations at 5.3% yoy, with core at 5.5% yoy. The apparent strength of the headline quarterly growth was driven by a few country idiosyncrasies and masks an underlying momentum that is likely much closer to stagnation, as revealed by domestic demand evolution across country releases. On the inflation side, headline yoy% continued falling as expected while core remained stable at 5.5% yoy from its previous print. Goods prices continued to show a decelerating momentum. Services prices remained resilient, but arguably not as strong as may have been initially expected for the 2023 tourism season.”

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Miltos Skemperis
Miltos Skemperis Financial Content Writer

Miltos Skemperis’ background is in journalism and business management. He has worked as a reporter on various TV news channels and newspapers. Miltos has been working as a financial content writer for the last seven years.