“RBA Governor: do we need another rate rise?” Mark Bouris & Stephen Koukoulas Monthly Update

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After yet another rate increase in November, Mark Bouris and economist Stephen Koukoulas return for their final monthly episode of 2023 before the RBA meets on Tuesday, the 5th of December, where RBA Governor, Michele Bullock, and the Board decide whether or not to keep the official cash rate on hold at 4.35%.

Key Takeaways:

• The RBA will undergo structural changes, transitioning to eight meetings a year from 11, starting February 2024. The new board will focus on monetary policy inflation, looking at how the economy and inflation are travelling, as well as administrative issues, including payment systems and banking sector health.
• Mark and Kouky consider the Governor’s recent statements about inflation being “homegrown,” rather than a result of imported or supply chain driven inflation. Kouky’s data analysis suggests it’s possibly due to exports continuing to do well, rather than other domestic factors, which are still neutral or negative.
• Business investment and confidence remains constant even while Mark’s visits to Perth, Sydney, and Melbourne reveal a mixed economic landscape. While some tech companies thrive, others, including banks, are reportedly cutting jobs due to economic weakness and technology-driven efficiency.
• Australia’s ‘patchwork economy’ continues to respond inconsistently to rate changes, however many aspects of the economy are slowing. Retail sales for October show a continued decline, building approvals remain weak, and business investment is not robust. Consumer sentiment? ‘We are miserable’.
• Speculation and confusion arise about the RBA’s messaging, with discussions on the possibility of interest rate hikes despite Australia’s economic challenges. Mark and Kouky agree that an interest rate hike, if implemented, would be unnecessary and potentially harmful to the economy, especially during the holiday season. Verdict? December’s on hold, but don’t look for rate cuts. ‘They ain’t on her agenda.’
• Mark and Kouky explore key issues coming out of our economic challenges including the relationship between immigration and GDP as per capita growth and the inequality resulting from the fact that ‘young people are bearing all of the burden of slowing the economy down.’
• Mark and Kouky suggest alternate strategies for moving the two arms of policy – monetary and fiscal – hand in hand. Such as investigating the potential to reduce inflation and improve the budget by implementing a flexible GST.

[Recorded before the 5/12/23 RBA announcement].