As expected the RBA left the cash rate unchanged at 4.75% in September. The initial market reaction was a rebound in the Aussie as the post-meeting statement turned out to be less dovish than previously anticipated. The central bank attributed the pause to the growing uncertainty in global economic outlook. Recent developments have damped confidence and tamed inflation. Against some of the market participants' forecasts, the RBA did not hint any signs on rate cut.
Policymakers acknowledged that global financial markets have been 'very unsettled over recent weeks' and the uncertainty and financial volatility is 'reducing confidence' and may result in 'more cautious behavior by firms and households in major countries'. In the near-term, the global growth outlook will look 'somewhat weaker' than what was estimated a few months ago.
Although the RBA reiterated that headline inflation should decline as temporary factors disappear, it remained concerned about the medium-term outlook. According to the statement, 'a key question will be the extent to which softer global and domestic growth will work, in due course, to contain inflation'. We believe inflation is a major consideration for RBA's monetary stance.
The jobless rate rose to 5.1% in July after staying at 4.9% over the past 4 months. The total number of payrolls increased +3K to 11.48K during month as addition in part-time employment offset the decline in full-time positions. The RBA did not show much worry about the employment situation although it noted that 'growth in employment has been moderate this year and the unemployment rate has been little changed, near 5 %, for some time now'. We believe the central bank will hold the same tone unless it sees the jobless rate rise to 5.5%.
Concerning monetary policy, the central bank believed that current levels of interest rates have exerted 'a degree of restrain'. Policymakers will continue to 'assess carefully the evolving outlook for growth and inflation' in future meetings.
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