Australia’s Westpac Leading Index figures reveals that growth rate has shown a marginal uptick, moving from -0.67% to -0.60% in July. But alarmingly, this marks the twelfth consecutive month in red, representing the longest stretch of such negative prints in a span of seven years, barring the COVID-affected period.

The subdued, below-par growth momentum witnessed throughout 2023 seems set to persist into the subsequent year. Westpac predicts deceleration in GDP growth to a mere 1% for the current year. Any potential rebound is anticipated to be minimal, with projections indicating a slight rise to 1.4% annually in 2024 – with the bulk of this growth concentrated towards the year-end.

Regarding RBA meeting on September 5, Westpac sets its expectations clear. The institution foresees cash rate remaining stable at 4.10%, denoting the zenith of this current tightening phase.

Referring the recent remarks of RBA Governor before the House of Representatives Standing Committee on Economics, the note emphasized, “Policy is now in a ‘calibration’ phase with small adjustments still possible if the data starts to show clear risks of a slower return to low inflation.”

Nevertheless, given the evident frailty in growth momentum – as underscored by the most recent Leading Index update – coupled with the broader dynamics of price and wage inflation aligning with RBA’s forecasts, “the threshold for additional tightening is high and unlikely to be met.”

Full Australia Westpac leading index release here.

In the minutes from RBA’s August 1 meeting, board members weighed the decision between raising cash rate by 25bps or maintaining its unchanged.

The board’s inclination to hold the rate steady was rooted in their belief that prior tightening measures were “working as intended.” Despite the full effects not yet being evident in the data, there were important signs, as “consumption had already slowed significantly”, “labour market might be at a turning point”, and “inflation was heading in the right direction”.

The board observed a “credible path back to the inflation target with the cash rate staying at its present level.” This assessment seemed to be “broadly in line with the staff’s central forecasts.” Solidifying their position, members collectively agreed that the reasons to “leave the cash rate unchanged at this meeting was the stronger one.”

Meanwhile, they also acknowledged that “further tightening of monetary policy might be required” to consistently meet inflation goals. Such decisions will be driven by data trends and ongoing risk assessments.

Full RBA minutes here.