RBA interest rates: ‘Cautious' board worried June inflation will be higher than forecast
The RBA surprised many observers by keeping the cash rate at 3.85 per cent at the meeting, after two cuts earlier this year.
Pressure for mortgage relief had built leading up to the meeting after data showed monthly inflation had slowed in the year to May.
But those figures do not show the complete picture of cost of living, and the RBA instead watches quarterly data to make decisions.
The board's call on July 8 hinged on concerns that numbers for the June quarter might be slightly higher than forecast, according to meeting minutes published on Tuesday.
'The sharp declines in the monthly indicators for headline and trimmed-mean inflation were likely to have overstated the easing in underlying inflation momentum,' the board minutes said.
'Movements in components of the monthly CPI data that contained new information suggested that underlying inflation in the June quarter could be slightly higher than the staff had forecast.
'This reflected upside surprises to new dwelling costs and consumer durables inflation in April.'
Yet the board was confident inflation was slowing, giving a clear signal that more rate cuts will be on the way — when the time is right.
Spending was improving amid an uptick of investment into new houses, while the jobs market was 'tight' and had so far not slowed as much as the RBA anticipated.
The board's call on the strength of the labour market will receive the most scrutiny after new figures showing a modest rise of unemployment released just days after the RBA meeting.
The unemployment rate ticked up to 4.3 per cent last week, while new jobs were stagnant.
Taken together, those numbers suggest the labour market was not soaking up population growth, but do not imply widespread job losses.
The figures sparked analysts to fire up calls for an interest rate reduction and financial markets on Monday night factored in a slim chance of a bumper-sized 50 point cut.
While the board had earlier been concerned that a looming global trade war would send the local economy off the rails, the threat had eased a little by the July meeting.
US President Donald Trump backed down on some of the most severe tariff proposals and pushed out the negotiating deadline for many countries to August.
Consumer and business confidence in Australia had not been hit as badly as in other major countries, the board said.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Advertiser
22 minutes ago
- The Advertiser
Asian stocks drop as investors brace for crucial week
Asian stocks retreated on Friday and the US dollar headed for its biggest weekly drop in a month ahead of a crucial week for markets that includes Donald Trump's tariff deadline and key central bank meetings. MSCI's global equity index retreated from an all-time high and was 0.2 per cent lower in early European trading while Japan's Nikkei index ended the day 0.7 per cent lower after two days of gains. Data released on Friday showed the inflation rate in Tokyo rose 2.9 per cent year-on-year in July, down from 3.1 per cent in June. Japanese government efforts to moderate inflation are working, though underlying Tokyo price pressures remain elevated, ING Economics said in a commentary. It expects the Bank of Japan to hold interest rates steady at its July 30-31 meeting, but said the central bank would likely raise its forecast for inflation. In the Chinese markets, Hong Kong's Hang Seng shed 1.1 per cent to 25,383.07 and the Shanghai Composite index slid 0.3 per cent to 3,593.38. Europe's STOXX 600 share index also fell 0.5 per cent in early trade. Ahead of the August 1 deadline for US trade deals with Europe and China, stock markets have been buoyed up by firm US economic data and framed the risk of tariffs hitting growth as a reason to expect Federal Reserve rate cuts. "Higher (US) inflation will, in time, result in weaker demand and weaker investment," UBS Wealth Management economist Dean Turner said. Van Luu, head of solutions strategy, fixed income and foreign exchange at Russell Investments, said he was waiting for a buying opportunity in US Treasuries for this reason. "US data looks astonishingly resilient," he said, but this likely reflected a spending rush before tariffs pushed business input costs and retail sticker prices higher. The past week saw US trade agreements with Japan, Indonesia and the Philippines, while deal talks continued with South Korea. Next week brings the next Fed interest rate meeting, the closely watched monthly payrolls report, and earnings from Amazon, Apple, Meta and Microsoft. Trump has kept up pressure on Fed Chair Jerome Powell to cut rates after a rare presidential visit to the central bank on Thursday, although he said he did not intend to fire Powell, as he has frequently suggested he would. US 10-year Treasury yields were steady at 4.41 per cent while two-year yields, which track monetary policy bets, were also flat at 3.923 per cent. Robust earnings from Google parent Alphabet took Wall Street's Nasdaq to a record high on Thursday but futures trading signalled the tech-heavy index would flatline at the start of cash trading in New York. Contracts tracking the blue-chip S&P 500 index were also flat in early European dealings. The Bank of Japan has its own policy announcement on Thursday, and Prime Minister Ishiba's Liberal Democratic Party holds a meeting on the same day. That's after the European Central Bank held rates steady on Thursday, pausing its easing campaign as it waited to assess the impact from US tariffs. The euro was steady against the dollar on Friday at $US1.1745 , although German government debt sold off, with the yield on benchmark 10-year Bunds up five basis points (bps) in early dealings to 2.74 per cent, the highest since March 28 . Japanese government bond yields were steady on Friday at about 1.6 per cent, a level last seen in October 2008, having ratcheted higher on concerns the political scale is tilting more towards fiscal stimulus. This came after big gains for opposition parties backing consumption tax cuts in Sunday's upper house election. Pressure is building on the more fiscally hawkish Ishiba to quit after his coalition lost its majority in the vote, having done the same in lower house elections last October. Gold eased 0.3 per cent to around $US3,356 an ounce. Brent crude futures gained 0.7 per cent to $US69.65 a barrel. with AP Asian stocks retreated on Friday and the US dollar headed for its biggest weekly drop in a month ahead of a crucial week for markets that includes Donald Trump's tariff deadline and key central bank meetings. MSCI's global equity index retreated from an all-time high and was 0.2 per cent lower in early European trading while Japan's Nikkei index ended the day 0.7 per cent lower after two days of gains. Data released on Friday showed the inflation rate in Tokyo rose 2.9 per cent year-on-year in July, down from 3.1 per cent in June. Japanese government efforts to moderate inflation are working, though underlying Tokyo price pressures remain elevated, ING Economics said in a commentary. It expects the Bank of Japan to hold interest rates steady at its July 30-31 meeting, but said the central bank would likely raise its forecast for inflation. In the Chinese markets, Hong Kong's Hang Seng shed 1.1 per cent to 25,383.07 and the Shanghai Composite index slid 0.3 per cent to 3,593.38. Europe's STOXX 600 share index also fell 0.5 per cent in early trade. Ahead of the August 1 deadline for US trade deals with Europe and China, stock markets have been buoyed up by firm US economic data and framed the risk of tariffs hitting growth as a reason to expect Federal Reserve rate cuts. "Higher (US) inflation will, in time, result in weaker demand and weaker investment," UBS Wealth Management economist Dean Turner said. Van Luu, head of solutions strategy, fixed income and foreign exchange at Russell Investments, said he was waiting for a buying opportunity in US Treasuries for this reason. "US data looks astonishingly resilient," he said, but this likely reflected a spending rush before tariffs pushed business input costs and retail sticker prices higher. The past week saw US trade agreements with Japan, Indonesia and the Philippines, while deal talks continued with South Korea. Next week brings the next Fed interest rate meeting, the closely watched monthly payrolls report, and earnings from Amazon, Apple, Meta and Microsoft. Trump has kept up pressure on Fed Chair Jerome Powell to cut rates after a rare presidential visit to the central bank on Thursday, although he said he did not intend to fire Powell, as he has frequently suggested he would. US 10-year Treasury yields were steady at 4.41 per cent while two-year yields, which track monetary policy bets, were also flat at 3.923 per cent. Robust earnings from Google parent Alphabet took Wall Street's Nasdaq to a record high on Thursday but futures trading signalled the tech-heavy index would flatline at the start of cash trading in New York. Contracts tracking the blue-chip S&P 500 index were also flat in early European dealings. The Bank of Japan has its own policy announcement on Thursday, and Prime Minister Ishiba's Liberal Democratic Party holds a meeting on the same day. That's after the European Central Bank held rates steady on Thursday, pausing its easing campaign as it waited to assess the impact from US tariffs. The euro was steady against the dollar on Friday at $US1.1745 , although German government debt sold off, with the yield on benchmark 10-year Bunds up five basis points (bps) in early dealings to 2.74 per cent, the highest since March 28 . Japanese government bond yields were steady on Friday at about 1.6 per cent, a level last seen in October 2008, having ratcheted higher on concerns the political scale is tilting more towards fiscal stimulus. This came after big gains for opposition parties backing consumption tax cuts in Sunday's upper house election. Pressure is building on the more fiscally hawkish Ishiba to quit after his coalition lost its majority in the vote, having done the same in lower house elections last October. Gold eased 0.3 per cent to around $US3,356 an ounce. Brent crude futures gained 0.7 per cent to $US69.65 a barrel. with AP Asian stocks retreated on Friday and the US dollar headed for its biggest weekly drop in a month ahead of a crucial week for markets that includes Donald Trump's tariff deadline and key central bank meetings. MSCI's global equity index retreated from an all-time high and was 0.2 per cent lower in early European trading while Japan's Nikkei index ended the day 0.7 per cent lower after two days of gains. Data released on Friday showed the inflation rate in Tokyo rose 2.9 per cent year-on-year in July, down from 3.1 per cent in June. Japanese government efforts to moderate inflation are working, though underlying Tokyo price pressures remain elevated, ING Economics said in a commentary. It expects the Bank of Japan to hold interest rates steady at its July 30-31 meeting, but said the central bank would likely raise its forecast for inflation. In the Chinese markets, Hong Kong's Hang Seng shed 1.1 per cent to 25,383.07 and the Shanghai Composite index slid 0.3 per cent to 3,593.38. Europe's STOXX 600 share index also fell 0.5 per cent in early trade. Ahead of the August 1 deadline for US trade deals with Europe and China, stock markets have been buoyed up by firm US economic data and framed the risk of tariffs hitting growth as a reason to expect Federal Reserve rate cuts. "Higher (US) inflation will, in time, result in weaker demand and weaker investment," UBS Wealth Management economist Dean Turner said. Van Luu, head of solutions strategy, fixed income and foreign exchange at Russell Investments, said he was waiting for a buying opportunity in US Treasuries for this reason. "US data looks astonishingly resilient," he said, but this likely reflected a spending rush before tariffs pushed business input costs and retail sticker prices higher. The past week saw US trade agreements with Japan, Indonesia and the Philippines, while deal talks continued with South Korea. Next week brings the next Fed interest rate meeting, the closely watched monthly payrolls report, and earnings from Amazon, Apple, Meta and Microsoft. Trump has kept up pressure on Fed Chair Jerome Powell to cut rates after a rare presidential visit to the central bank on Thursday, although he said he did not intend to fire Powell, as he has frequently suggested he would. US 10-year Treasury yields were steady at 4.41 per cent while two-year yields, which track monetary policy bets, were also flat at 3.923 per cent. Robust earnings from Google parent Alphabet took Wall Street's Nasdaq to a record high on Thursday but futures trading signalled the tech-heavy index would flatline at the start of cash trading in New York. Contracts tracking the blue-chip S&P 500 index were also flat in early European dealings. The Bank of Japan has its own policy announcement on Thursday, and Prime Minister Ishiba's Liberal Democratic Party holds a meeting on the same day. That's after the European Central Bank held rates steady on Thursday, pausing its easing campaign as it waited to assess the impact from US tariffs. The euro was steady against the dollar on Friday at $US1.1745 , although German government debt sold off, with the yield on benchmark 10-year Bunds up five basis points (bps) in early dealings to 2.74 per cent, the highest since March 28 . Japanese government bond yields were steady on Friday at about 1.6 per cent, a level last seen in October 2008, having ratcheted higher on concerns the political scale is tilting more towards fiscal stimulus. This came after big gains for opposition parties backing consumption tax cuts in Sunday's upper house election. Pressure is building on the more fiscally hawkish Ishiba to quit after his coalition lost its majority in the vote, having done the same in lower house elections last October. Gold eased 0.3 per cent to around $US3,356 an ounce. Brent crude futures gained 0.7 per cent to $US69.65 a barrel. with AP Asian stocks retreated on Friday and the US dollar headed for its biggest weekly drop in a month ahead of a crucial week for markets that includes Donald Trump's tariff deadline and key central bank meetings. MSCI's global equity index retreated from an all-time high and was 0.2 per cent lower in early European trading while Japan's Nikkei index ended the day 0.7 per cent lower after two days of gains. Data released on Friday showed the inflation rate in Tokyo rose 2.9 per cent year-on-year in July, down from 3.1 per cent in June. Japanese government efforts to moderate inflation are working, though underlying Tokyo price pressures remain elevated, ING Economics said in a commentary. It expects the Bank of Japan to hold interest rates steady at its July 30-31 meeting, but said the central bank would likely raise its forecast for inflation. In the Chinese markets, Hong Kong's Hang Seng shed 1.1 per cent to 25,383.07 and the Shanghai Composite index slid 0.3 per cent to 3,593.38. Europe's STOXX 600 share index also fell 0.5 per cent in early trade. Ahead of the August 1 deadline for US trade deals with Europe and China, stock markets have been buoyed up by firm US economic data and framed the risk of tariffs hitting growth as a reason to expect Federal Reserve rate cuts. "Higher (US) inflation will, in time, result in weaker demand and weaker investment," UBS Wealth Management economist Dean Turner said. Van Luu, head of solutions strategy, fixed income and foreign exchange at Russell Investments, said he was waiting for a buying opportunity in US Treasuries for this reason. "US data looks astonishingly resilient," he said, but this likely reflected a spending rush before tariffs pushed business input costs and retail sticker prices higher. The past week saw US trade agreements with Japan, Indonesia and the Philippines, while deal talks continued with South Korea. Next week brings the next Fed interest rate meeting, the closely watched monthly payrolls report, and earnings from Amazon, Apple, Meta and Microsoft. Trump has kept up pressure on Fed Chair Jerome Powell to cut rates after a rare presidential visit to the central bank on Thursday, although he said he did not intend to fire Powell, as he has frequently suggested he would. US 10-year Treasury yields were steady at 4.41 per cent while two-year yields, which track monetary policy bets, were also flat at 3.923 per cent. Robust earnings from Google parent Alphabet took Wall Street's Nasdaq to a record high on Thursday but futures trading signalled the tech-heavy index would flatline at the start of cash trading in New York. Contracts tracking the blue-chip S&P 500 index were also flat in early European dealings. The Bank of Japan has its own policy announcement on Thursday, and Prime Minister Ishiba's Liberal Democratic Party holds a meeting on the same day. That's after the European Central Bank held rates steady on Thursday, pausing its easing campaign as it waited to assess the impact from US tariffs. The euro was steady against the dollar on Friday at $US1.1745 , although German government debt sold off, with the yield on benchmark 10-year Bunds up five basis points (bps) in early dealings to 2.74 per cent, the highest since March 28 . Japanese government bond yields were steady on Friday at about 1.6 per cent, a level last seen in October 2008, having ratcheted higher on concerns the political scale is tilting more towards fiscal stimulus. This came after big gains for opposition parties backing consumption tax cuts in Sunday's upper house election. Pressure is building on the more fiscally hawkish Ishiba to quit after his coalition lost its majority in the vote, having done the same in lower house elections last October. Gold eased 0.3 per cent to around $US3,356 an ounce. Brent crude futures gained 0.7 per cent to $US69.65 a barrel. with AP
News.com.au
an hour ago
- News.com.au
Trump puts world 'on notice' to lift beef bans
US President Donald Trump has issued a scorching demand for any global bans on US beef to be lifted, following the relaxation of importation rules in Australia. In a post on his social media platform Truth Social, Mr Trump said 'After many years Australia has agreed to accept American Beef'. 'For a long time, and even though we are great friends, they actually banned our Beef.' He insisted that the US would now sell 'so much to Australia'. 'This is undeniable and irrefutable Proof that U.S. Beef is the Safest and Best in the entire World. 'The other Countries that refuse our magnificent Beef are ON NOTICE. 'All of our Nation's Ranchers, who are some of the hardest working and most wonderful people, are smiling today, which means I am smiling too. He ended the post with a call to 'keep the Hot Streak going'. It comes after the Albanese government's decision to lift restrictions on US beef imports, which came after a lengthy science-based review. The relaxation of the rules has however faced criticism from the Coalition for its 'exquisite' timing as Labor enters trade negotiations with the US. The Trump Administration claimed credit for the change in a Department of Agriculture press release titled 'Make Agriculture Great Again Trade Wins: President Trump Secures Greater Ag Market Access to Australia for American Beef'. The US Secretary of Agriculture Brooke Rollins said the change removed 'non-scientific trade barriers'. 'Gone are the days of putting American farmers on the sidelines,' Ms Rollins said. 'This is yet another example of the kind of market access the President negotiates to bring America into a new golden age of prosperity, with American agriculture leading the way.' The change was also praised by US Trade Representative Jamieson Greer in a statement on Thursday that singled out US President Donald Trump's 'leadership' for the change. 'Yesterday's decision by Australia marks a major milestone in lowering trade barriers and securing market access for US farmers and ranchers,' he said. 'President Trump is taking decisive action to confront unfair trading practices, and Australia's decision to unlock market access for US beef is a direct result of his leadership.' US beef was first banned in Australia in 2003 following an outbreak of mad cow disease. It was a total ban until 2019, when it was lifted, albeit restrictions remained on US exports that originated in Canada or Mexico. Australia had maintained the ban under the banner of biosecurity, but Agriculture Minister Julie Collins said that the Department of Agriculture, Fisheries and Forestry was 'satisfied' with the 'strengthened control measures' put in place by the US. Local Australian beef producers have said the expect the new import rules to have minimal effect, citing high demand in the US and Australian's preference for homegrown meat. 'The potential for US beef to be imported into Australia in large volumes is minimal, given the high demand for beef in the US, the low US cattle herd, the strength of the Australian dollar, our competitive domestic supply, and most importantly Australians' strong preference for high-quality, tasty and nutritious Australian beef,' Meat and Livestock Australia said in a statement.
Perth Now
2 hours ago
- Perth Now
Warning ‘nervous' RBA could hold rates
A big four bank is warning mortgage holders a 'nervous' RBA could hold interest rates again in August as it looks to kill off inflation. Westpac chief economist Luci Ellis says Tuesday's release of minutes of the Reserve Bank's July meeting and the governor's keynote speech on Thursday reaffirm a rate cut in August is not a lock. 'The monetary policy board clearly remains nervous about inflation and some members want to see actual data to support their expectation that it is still declining towards 2.5 per cent, the midpoint of the RBA's 2-3 per cent target range,' Ms Ellis wrote in an economic note on Friday. 'For this reason, we cannot lock in the cash rate cut in August just yet.' Despite warning a cut is not a guarantee, Ms Ellis did concede the most likely outcome was a rate reduction in August. Homeowners are warned a rate cut in August is not guaranteed. NewsWire / Nicholas Eagar Credit: NewsWire Traders have priced in an August rate cut as a near certainty and all 29 market economists surveyed by Bloomberg say the official cash rate will be reduced by 25 basis points. The market in total expects 75 basis points worth of cuts by March 2026, bringing the official cash rate down from 3.85 to 3.10 per cent. While economists have been factoring in falling inflation and rising unemployment as a sign to cut, Ms Ellis said they shouldn't be pricing it as a certainty. 'Monetary board members who are still nervous about supply constraints and tight labour markets will want to tread slowly,' Ms Ellis said. In her speech to the Anika Foundation on Thursday, RBA governor Michele Bullock said the board would take a measured and gradual approach to future rate cuts. Ms Bullock pointed out year-end trimmed mean – which shows the underlying inflation rate by stripping out the more volatile parts of the economy, including fuel and energy prices – came in at just under 3 per cent for the first time since 2021. 'The monthly CPI Indicator data, which are volatile, suggest that the fall may not be quite as much as we forecast back in May,' she said. 'We still think it will show inflation declining slowly towards 2.5 per cent, but we are looking for data to support this expectation.' ANZ also came out with a warning saying the next round of CPI data – to be released next Wednesday – could derail an interest rate cut. ANZ said there is a key quarterly inflation figure to watch. Christian Gilles / NewsWire Credit: News Corp Australia ANZ economists say the central bank will be comfortable cutting should the quarterly trimmed mean figures come in at 0.6 per cent or 2.7 per cent for the year. But if the number comes in at 0.8 per cent or higher or an annualised rate of 3 per cent they say a cut is unlikely. Ms Bullock also said the labour market remained tight and the uptick in unemployment from 4.1 to 4.3 per cent in June was not a surprise to the central bank. Asked if seeing the June unemployment figures, which came out after the RBA's board meeting, would have swayed the board's decision Ms Bullock said: 'I don't think so'. 'The monthly numbers pop up and down … Our quarterly forecast for the unemployment rate to drift up to 4.2 per cent in the June quarter is pretty much on the mark,' Ms Bullock said. Ms Bullock also said economists overreacted to the figure and it wasn't the 'shock' they were calling it. 'Some of the coverage of the latest data suggested this was a shock – but the outcome for the June quarter was in line with the forecast we released in May,' she said. She said the board wanted to see a gradual easing in labour market conditions, that has so far been most evident in fewer job vacancies, reductions in hours worked and declining rates of voluntary job switching.
