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Steve Campbell: Aussies aren’t likely to see another rate change this year
May 07, 2024
The Reserve Bank seems prepared to look through higher near-term inflation without hitting the panic button. Pendal’s head of cash strategies STEVE CAMPBELL explains the latest numbers
THE Reserve Bank left the cash rate unchanged at 4.35% today – and that’s where it will likely stay this year, based on its accompanying quarterly forecasts.
Bond yields rally following the announcement.
Those looking for a more hawkish tilt following higher-than-expected, first-quarter inflation data were left disappointed.
The RBA’s economic forecasts – contained in its quarterly Statement on Monetary Policy (or SoMP) made for interest reading.
If the SoMP was released prior to the rate announcement, yields may have actually moved higher.
The RBA is now forecasting annual headline inflation to end the year at 3.8% – up from 3.2% in the February statement.
Annual trimmed mean inflation (which filters out extreme price movements) is now forecast to be 3.4% at the end of the year, up from 3.1%.
Upward revisions of 0.6% and 0.3%? It would not have been unreasonable to expect something more hawkish today.
However, the RBA is looking through nearer-term upside inflation. Inflation forecasts for 2025 remain unchanged at 2.8%.
The RBA also revised the quarterly unemployment rate lower by 0.1% to 0.2%. It’s now expected at 4.2% by the end of the year.
Economic growth was forecast to be lower. Part of this is also due to higher rates that have gone into forecasts relative to February.
These are not the RBA’s assumptions on where the cash rate will be.
Rather they use market pricing and economist expectations for the cash rate, which have changed by around 0.5% to 0.6% since the February forecasts.
What’s next
So what do we take out of today?
Should inflation end the year close to the RBA’s forecasts, then rate cuts won’t be happening this year.
Yet the statement reflects patience on the part of the RBA. The central bank seems prepared to look through higher near-term inflation outcomes and is not hitting the panic button.
It will take more to tighten monetary policy. The cash rate is now more likely to end 2024 at 4.35%.
Find out about
Pendal’s
cash funds
About Steve Campbell and Pendal’s Income and Fixed Interest team
Steve Campbell is Pendal’s head of cash strategies. With a background in cash and dealing, Steve brings more than 20 years of financial markets experience to our institutional managed cash portfolio.
Find out more about Pendal’s cash funds:
Short Term Income Securities Fund
Pendal Stable Cash Plus Fund
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.
This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current at May 7, 2024. PFSL is the responsible entity and issuer of units in the Pendal Short Term Income Securities Fund (Fund) ARSN: 088 863 469. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com.
The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested.
This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs.
This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards.
Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections.
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