(Bloomberg) — Australia’s central bank is widely expected to hold interest rates at a 12-year high on Tuesday as the economy shows signs of slowing further while unemployment trends higher.
Economists expect the Reserve Bank will keep its cash rate at 4.35% for a third straight meeting, while maintaining a hawkish bias amid uncertainty over the strength of a disinflationary impulse. The board meeting — the first for Deputy Governor Andrew Hauser — begins Monday with the decision released at 2:30 p.m. in Sydney on Tuesday, followed by the governor’s press conference an hour later.
“We expect a slight tightening bias will be kept,” said Chris Read, a Sydney-based economist at Morgan Stanley. “The governor will likely highlight how the data over the past six weeks has evolved broadly as expected and is consistent with continued progress towards the RBA’s targets.”
Australia’s policy announcement will likely come shortly after a decision by the Bank of Japan, which may raise rates on Tuesday for the first time since 2007 following solid outcomes in wage negotiations. A day later, the Federal Reserve will probably release an on-hold decision.
RBA Governor Michele Bullock will be mindful of global inflationary trends with price pressures in the US, in particular, abating only gradually. That has led Fed Chair Jerome Powell to say he and his colleagues aren’t ready to cut rates yet.
Australian policymakers have also pushed back against bets on near-term easing, reflecting concerns that inflation remains well above the 2%-3% target and is only forecast to return to the goal range at the end of 2025. Economists, who broadly see a first rate cut in the second half of the year, expect Tuesday’s statement to stay hawkish as inflation remains sticky.
Another reason to keep talking tough is the hot property market. Bullock and her colleagues would be loathe to further fuel home prices, which have been on an upswing driven by a supply shortage and strong population growth.
Swaps traders bet on high odds that the RBA will start easing in August, while they are fully pricing the Fed kicking off its rate-cut cycle in July.
Data since the RBA’s February meeting has indicated a slowing in the economy, which grew a feeble 0.2% in the final three months of 2023 from the prior quarter. In per capita terms, gross domestic product fell 0.3% from the third quarter and was 1% lower than a year earlier, the deepest downturn outside the pandemic since 1991, according to Bloomberg Economics.
Monthly inflation for January came in at 3.4%, below economists’ estimates, though worries remain that the impact of falling goods prices is coming to an end, while services remain sticky. Retail sales for the month missed expectations, too.
Australia’s labor market is also showing signs of loosening, although with the unemployment rate at 4.1% it’s still healthy. Jobs data for February will be released on Thursday. The resilience of employment has given policymakers optimism that they can engineer a soft landing — bringing down inflation while holding onto the enormous job gains of recent years.
“There is light at the end of the tunnel,” Luci Ellis, chief economist at Westpac Banking Corp., said in a research note. Ellis was previously an RBA assistant governor.
“Inflation is moderating, which will help to lessen the pressure on households,” she said. “Policy is set to pivot from mid–year, with the stage-3 income tax cuts commencing from July 1 and the beginning of an RBA easing cycle, expected from September. Less restrictive policy will support an economic revival.”
On Friday, the RBA will publish its semi-annual financial stability report which will elaborate on the impact of rising borrowing costs on Australian banks, which have weathered the tightening cycle better than most expected.
–With assistance from Garfield Reynolds and Tomoko Sato.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
