RBA Response to Hypothetical Large Rate Cut by US Fed: Citi Economists Analysis
In a recent report, Citi economists discussed the potential actions of the Reserve Bank of Australia (RBA) in light of a hypothetical significant rate cut by the U.S. Federal Reserve. The research firm's commentary comes amidst speculation about global central bank movements and recent statements from the RBA's Governor and Deputy Governor indicating a reluctance to follow market expectations for interest rate cuts this year.
Citi suggests that the RBA's communication strategy may change if the Fed decides to implement a substantial 50 basis points policy rate decrease at the upcoming September Federal Open Market Committee (FOMC) meeting. This move by the Fed could lead to increased market optimism and expectations for more aggressive easing by the RBA. However, Citi maintains the opinion that even if the Fed cuts rates, the RBA is unlikely to follow suit in 2023.
In a note, Citi economists stated, "If the US Fed does indeed cut by 50bps in the September FOMC meeting, then the September RBA meeting a week after raises risks of more hawkish Delphic guidance from Governor Bullock against market pricing." They also added, "Barring a downside inflation surprise in Q3—we have trimmed-mean inflation at 0.8%—and an unexpected rise in the unemployment rate, we do not see the RBA cutting rates this year, even if the Fed is reducing policy rates by increments of 50bps."
Citi concluded that the only upcoming data point before the next RBA meeting is the August Labour Force Survey.
Analysis: In simple terms, Citi economists are discussing how the RBA might react to a potential large rate cut by the U.S. Federal Reserve. If the Fed cuts rates, there could be expectations for the RBA to follow suit, but Citi believes that this may not happen in 2023. The outcome of these central bank decisions could impact market sentiment and potentially affect interest rates in Australia.
