Reserve Bank Assistant Governor Christopher Kent stated Australia's labor market is softening faster than the central bank predicted, highlighting the challenge of slowing inflation while preserving employment gains. Australian unemployment came in higher than expected in September, prompting traders to reduce bets on further rate hikes. However, Kent cautioned that inflation data due next week is crucial for the central bank's outlook.
The Reserve Bank recently raised the cash rate to a 15-year high of 4.6% to combat stubborn inflation. Governor Michele Bullock's subsequent comments were seen as dovish, reflecting the RBA's uncertainty about the economy's response to higher rates. Deputy Governor Andrew Hauser is scheduled to speak this week, with investors scrutinizing his remarks for clues on the interest-rate path.
Traders currently anticipate one more rate hike by May next year, with about a one-in-four chance of a move at the November 2-3 policy meeting. Kent noted the cash rate and its expected path sit at the upper end of the RBA's neutral rate range, suggesting monetary policy is somewhat restrictive, though questions remain if it is restrictive enough. Australia is undergoing one of the most aggressive tightening cycles among developed economies this year.
The RBA has raised rates by 1 percentage point this year, with the Middle East conflict identified as a notable adverse supply shock complicating the inflation-unemployment tradeoff.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing