Back to Blog Home

Economic Update: The extended pause

09 October 2023

Summary:

The RBA kept the cash rate at 4.1% at its October meeting;
That was not a surprise given the run of economic data;
There remain good reasons to think another rate hike may yet be on the way;
The Q3 CPI data released on 25 October will play a crucial role in determining whether there will be a rate rise in November.

The jobs market has been strong

There was no surprise in the RBA decision to keep the cash rate at 4.1% following its October Board meeting. It would have been slightly embarrassing for the previous Deputy Governor in her first meeting as Governor to have hiked rates after two weeks in the job, given that she was part of the decision-making process that had kept the cash rate unchanged at the preceding two meetings.

Concerns about optics though would not have stopped the Board raising the cash rate. But not enough had happened in the domestic and global economy to change the RBA’s view that inflation was on track to hit the 2-3% inflation target by their end-2025 forecast. Economic growth is at a reasonable, but below trend pace. In aggregate both the domestic economic activity and inflation numbers have been coming in a little below consensus views.

There have been interesting trends developing beneath the aggregate movements. A notable feature of the current economy is the very different views both between and within the household and business sectors about the state of their finances.

The jobs market has weakened modestly highlighted by the rise in the underutilisation rate. In my view, that increase mainly reflects the big rise in the supply of workers (record high participation rate, record high number of people working multiple jobs, strong immigration growth). The demand for workers while down from its highs in 2022 remains at historically high levels.