Following the "dovish" stance of the Federal Reserve? Economists: The Reserve Bank of Australia will keep interest rates unchanged this week

According to Zhitong Finance, the Reserve Bank of Australia will announce the latest interest rate decision at 12:30 noon Beijing time on Tuesday, followed by a press conference by RBA Governor Brock an hour later. Surveys show that economists predict the central bank may maintain the key interest rate at a 12-year high of 4.35% for the fifth consecutive meeting, in an attempt to curb consumer prices supported by an extremely tight labor market.

Prior to the policy meeting in Australia, the Federal Reserve made a highly anticipated decision last week, with Fed Chair Powell stating that he was not in a rush to ease monetary policy even after soft inflation reports. RBA Governor Brock may adopt a similar strategy, maintaining a mildly hawkish stance on acknowledging the stickiness of consumer prices.

Brock has retained the most policy flexibility this year, stating that she needs confidence in inflation returning sustainably to the 2%-3% target, hence the Monetary Policy Committee does not rule out any possibilities. The RBA predicts that inflation will not return to target levels until the end of next year, which is a longer timeframe as it seeks to sustain post-pandemic employment growth.

MFS Investment's Fixed Income Analyst Carl Ang in Singapore stated: "We expect the RBA to easily maintain its slightly hawkish stance of keeping rates unchanged. Looking ahead, we believe the RBA will start cutting rates from early 2025 to strike a balance between supporting economic growth and controlling inflation, thereby helping to mitigate recession risks." This aligns with most economists and money market pricing.

Bloomberg economist James McIntyre said: "Considering the stronger-than-expected inflation data in April, the committee may consider the option of raising rates. However, we still believe the next rate move will be a cut, but the RBA is unlikely to start easing policy before the second half of 2024."

Since the last RBA meeting, data shows a significant slowdown in the Australian economy, with per capita GDP shrinking, and lackluster retail sales reflecting subdued consumer sentiment. Stubborn inflation and high borrowing costs are the main reasons. Meanwhile, the labor market remains tight with a 4% unemployment rate, leading policymakers to optimistically believe they can achieve a soft landing.

Bank of America analyst Micaela Fuchila said: "Undoubtedly, a strong jobs report further strengthens our belief that economic growth will continue for a longer period. Despite the labor market remaining strong, the economy is still weakening. We believe the central bank will focus on the impact of fiscal policy on economic growth and employment before considering easing measures." The Australian government will begin reducing income taxes on July 1st and provide electricity subsidies to 10.4 million households. Bloxham expects that consumers will either save the extra money or use it to repay mortgages rather than spend it. She predicts that the stimulus measures will not have a substantial impact on the inflation forecast of the Reserve Bank of Australia.

In her testimony to lawmakers earlier this month, she said, "If you hand someone $300 and then say 'this is $300,' I think psychologically they will have different thoughts. The energy bill tax refund is helping those who are currently clearly hurt, but I don't think it's important for our inflation forecast."