Australian Bond Exchange

Australian Bond Exchange Weekly Update

Friday 22nd September 

Key Points 

  • RBA considered another rate hike in September 
  • U.S. Federal Reserve holds rates steady again  
  • U.K inflation surprises to the downside prompting BoE to hold  

Global Cash Rates & Inflation

The RBA Considered Another Rate Hike in September  

Meeting minutes released by the Reserve Bank of Australia (RBA) revealed that the Board closely considered two policy options at its September meeting: including holding the cash rate at the current 4.1%pa or increasing by a further 0.25% pa.  

The minutes show that while members of the Board expect inflation to continue moderating in the latter half of the year, headline inflation was an ongoing concern given the recent surge in fuel prices.  

It was also noted that while labour conditions remained tight, the Australian economy was “experiencing a period of subdued growth”, primarily attributable to weaker consumer spending.  

Ultimately, the decision to hold interest rates was largely due to the fact that the full effects of such rapid rate rises were yet to be realised throughout the economy. 

Hawkish Pause: U.S. Federal Reserve Holds Again  

The Federal Reserve has held rates once again at 22-year highs with the central bank continuing to adopt a wait and see approach following the 11 interest rate rises made between March 2022 and July 2023.  

Quarterly projections released by the Bank now indicate that the U.S. economy is expected to grow by 2.1 – 2.2% in 2023, up from previous projections as low as 0.4%.  

While this undeniably strengthens the notion that a soft landing can be achieved, rates are likely to stay higher for longer with fewer cuts in 2024 than previously anticipated. 

“We’re prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we’re confident that inflation is moving down sustainably toward our objective.” 

Jerome Powell, Chairman, Federal Reserve 

U.K CPI Comes in Lower at 6.7% Prompting Bank of England to Hold 

The U.K CPI came in lower than expected at 6.7% in the year to August, prompting the Bank of England to hold its Bank Rate steady at 5.25%pa for the first time in 2023. 

While the decision will undoubtedly be a relief to many, statements issued by the Bank remain hawkish with the Monetary Policy Committee (MPC) stating that “further tightening would be needed if evidence of more persistent inflationary pressures”.  

The U.K. inflation reading marks the lowest level in 18 months with food and accommodation prices being the key drivers of downward pressure. Unsurprisingly, fuel prices were the largest contributor to the upside as the price of oil continues to trade at 10-month highs. 

Despite the good news, the Organisation for Economic Co-operation and Development (OECD) is forecasting that the U.K. will have one of the highest inflation rates among the G7 economies, expecting inflation to average 7.2% in 2023. 

Final Thoughts 

As central banks hold official interest rates steady but with further hikes still plausible (and fewer cuts in 2024 likely), our view is the outlook for fixed-income securities remains highly favourable in a ‘higher for longer’ interest rate environment. 

What’s Coming Up?

  • Japanese inflation figures and a BoJ interest rate decision  
  • U.K retail sales figures  
  • German PMI and consumer confidence data 
  • U.S. GDP growth  

*Data accurate as at 15.09.2023 

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