|
|
|
|
Hedge Clippings | 07 November 2025 The RBA's Balancing Act -- Up, Down, or Just Stuck? The RBA did exactly what everyone expected this week -- nothing. Rates stay put at 3.6 per cent, and for now that seems the safest course. But between the lines of Governor Michelle Bullock's press conference and the latest forecasts, the more interesting question isn't what the RBA did, but what it might do next. Depending on your perspective, that next move could just as easily be up as down. For one, inflation is refusing to behave. After more than a year of steady declines, the September quarter showed prices ticking higher again -- both in the annual headline number of +3.2%, and in the trimmed mean, which the RBA watches most closely, of 1% for the September quarter, and 3% for the past 12 months. At 3 per cent annualised, underlying inflation is moving in the wrong direction, and the RBA now doesn't expect it to fall back to its 2.5 per cent target midpoint until June 2027. That's a long time to be patient. Add to that a housing market that's rising again, consumers who appear to be rediscovering their wallets, and a labour market that's still "a little tight", and you've got the ingredients for inflation to stick around longer than anyone wants. Bullock herself made the point that monetary policy is "a little restrictive", but not much more than that. Credit is flowing freely, private demand is lifting, and the early effects of rate cuts earlier in the year are still working their way through. If inflation does prove stubborn, the argument for a nudge back up in rates will be hard to ignore -- especially if the RBA wants to protect its hard-won credibility. Then again, the RBA knows the economy is fragile. Unemployment has crept up to 4.5 per cent, job growth is slowing, and productivity -- the missing ingredient in every optimistic forecast -- remains weak. Wages growth has already eased from its peak, suggesting inflationary pressure from the labour market may be topping out. Add in a backdrop of global uncertainty, slowing trade, and the lingering drag of higher household debt servicing costs, puts the case for staying put -- or even easing -- but only once the data shows inflation back on a downward path. The release of reliable monthly CPI numbers (in other words, based on full data) for October, due out on November 25, will provide a clearer and a more up to date picture. Bullock's message was cautious rather than hawkish: the Board will watch the data and reassess each month. And the RBA's own central forecast still assumes the next technical move will be a rate cut -- albeit not until well into 2026. So, which way does the wind blow? For now, it's a stalemate. Inflation's too high to cut, but growth's too soft to hike. The RBA will no doubt sit tight in December, talking tough but acting cautiously, while hoping those "temporary factors" in the September CPI really do prove temporary. If inflation edges higher again in the months to come, the probability of a hike rises -- perhaps not by much, but enough to keep markets nervous. Conversely, if inflation steadies and the labour market continues to ease, rate cuts will creep back onto the horizon by mid-late next year. The RBA's next move could still go either way. But for households, businesses, and markets, the message is the same: don't expect relief soon, and don't rule out another bump if inflation refuses to play ball. In other words, rates might not be going up, but they're certainly not going anywhere fast. News | Insights New Funds on FundMonitors.com Fund manager ratings: Why due diligence is key, even on ratings houses | Fundmonitors.com Magellan Global Quarterly Update | Magellan Asset Management |
|
|
If you'd like to receive Hedge Clippings direct to your inbox each Friday |
