Australian Bond Exchange Weekly Update
27th December 2024
Key points
- RBA signals potential rate cut in February
- IMF warns on Inflation
- Aussie spending splurge
Global Cash Rates & Inflation
- The Reserve Bank of Australia (RBA) Cash Rate now sits at 4.35%pa and the annual inflation rate in the year to October is 2.1%.
- The US cash rate (policy rate) is currently between 4.25%-4.50%pa and the annual inflation rate in the year to November is 2.7%.
- The Bank of England Bank Rate currently sits at 4.75%pa to fight an inflation rate of 2.6% in the year to November.
- The European Central Bank Cash Rate (deposit facility) is 3.0%pa, to fight an annual inflation rate of 2.2% in the year to November.
RBA Signals Potential Rate Cut in February
The central bank revealed on Tuesday that key economic indicators, specifically wages and overall economic growth, had shown weaker-than-anticipated results in the period between its board meetings held on November 4-5 and December 9-10.
This softer data underscores a slower-than-expected momentum in the economy, signalling potential challenges in achieving targeted growth and inflation goals.
The softer data will likely influence the Bank’s future policy decisions as it contemplates “relaxing the degrees of monetary tightness”.
Should an interest rate cut materialise in February, it could have significant implications for investors, particularly those relying heavily on cash holdings and term deposits.
IMF Warns on Inflation
As the Reserve Bank of Australia signals potential rate cuts, the International Monetary Fund has raised concerns that increased government spending and a tighter-than-anticipated labour market could keep inflation persistently high.
The IMF outlined that should disinflation lose momentum; a more rigorous combination of monetary and fiscal tightening may be required.
Aussie Spending Splurge
Australians are expected to embrace the festive shopping spirit this year, with projections indicating a massive $1.3 billion in spending on Boxing Day alone.
This surge in retail activity reflects the allure of post-Christmas sales, as consumers seek bargains and take advantage of discounts.
Furthermore, spending momentum is anticipated to carry through to the final days of December, with an additional $2.4 billion forecasted to be spent during this period.
The RBA closely monitors consumer spending trends as a key barometer of economic health and inflationary pressures – and strong year-end spending figures could therefore influence the RBA’s interest rate decision in February.
Happy New Year from the Australian Bond Exchange
As we welcome the New Year, the Australian Bond Exchange team extends our warmest wishes for prosperity, good health, and happiness to all our valued clients and partners. We look forward to continuing to assist you in navigating the evolving market landscape and achieving your investment goals in 2025.
*Data accurate as at 27.12.2024
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