By Lucinda Jerogin, Associate Economist at CBA
- RBA appearances last week reinforced the cautious but hawkish leaning nature of the Monetary Policy Board. We continue to expect a 25bp rate hike in May to take the cash rate to 4.10%.
- The value of new housing loan commitments rose sharply in Q4 25 (+9.5%/qtr), driven higher by first home buyers (+15.5%/qtr) supported by the expanded 5% deposit scheme.
- Our Wage and Labour insights report pointed to a labour market that is broadly stable and still tight but not materially retightening.
- Sentiment surveys paint a mixed picture amid weakening consumer confidence butstill solid conditions.
- Offshore, US nonfarm payrolls printed much stronger than expected. UK Q4 GDP was weaker.
- The week ahead will see the release of the Minutes of the February RBA Monetary Policy Board Meeting. The January Labour Force Survey and Q4 Wage Price Index are also due.
- Abroad, the RBNZ meets and is expected to keep the OCR on hold at 2.25%.
It was a relatively quiet week for global financial markets. Locally, analysts’ attention was on a series of RBA appearances. The communication roadshow included a fireside chat with Deputy Governor Andrew Hauser, an appearance of Governor Bullock and Assistant Governor Kent before the Senate Economics Legislation Committee and a speech by Assistant Governor (Economic) Sarah Hunter.
The plethora of communication reiterated the cautious but ready to act nature ofthe Board. As Hauser put it ‘Inflation is too high and we will do what it takes to bring it down’.
Sarah Hunter’s speech on Thursday unpacked the RBA’s approach to assessing full employment, shifting away from a traditional ‘unemployment gap’ framing towards a broader suit of indicators such as vacancies and hours worked. Taken together, these measures suggest the labour market has eased by more than the unemployment gap alone implies but remains slightly tighter than full employment. This assessment sits in line with sticky inflation.
In totality, this week’s communication added colour to the RBA’s reassessment of supply constraints in the economy but did little to change our thinking for policy. We continue to expect a 25bp rate hike in May (05/05). Survey data released this week reinforced our view that policy adjustments from here are likely to be fine tuning rather than the start of a material tightening cycle.
Our CBA Wage and Labour Insights showed wages growth was steady in both quarterly (0.8%/qtr) and annual (3.1%/yr) terms and an estimated 21,000 jobs were added in January. This indicates a labour market that is still tight, but not one that is materially strengthening to the degree suggested in the December labour force survey.
Sentiment data painted a mixed but stable picture. Consumer sentiment declined 2.6% in February, driven lower by rising rate hike expectations. However, the 2.6% decline this month compares to an average 3.8% fall following cash rate rises historically, likely reflecting the widely anticipated nature of the February move.
The NAB business survey indicated economic activity remains solid and encouragingly showed some easing in capacity utilisation and price and cost measures over recent months. Business conditions eased to +7 (around the long-term average) while business confidence was steady at +3 (a bit below the long-term average).
On Friday, we released the January edition of our CommBank HSI. The HSI index recorded another solid gain, rising 0.5% in January. Positive growth has now been recorded in every month since September 2024 and annual growth sits at slightly lower but still solid 5.6%.
In official ABS data, new lending strengthened noticeably in the second half of last year. The value of new housing loan commitments rose by 9.5%/qtr in Q4 to be 23.5% higher through the year.
Growth in the quarter was led by first home buyer (+15.5%/qtr), largely driven by Government expanded 5% deposit scheme which came online in October. Lending to owner-occupiers excluding first home buyers rose by 6.5% while investor lending slowed but remained firm at 7.9%/qtr.
International arrivals and departures data indicated federal Government enrolment caps may be starting to weigh on foreign student numbers. Tourist arrivals continue to trend higher but remain below pre pandemic levels.
Offshore last week, US nonfarm payrolls rose by a larger than anticipated 130k in January. The unemployment rate fell to 4.3%, causing markets to pare back pricing for FOMC interest rate cuts.
In the UK, Q4 GDP rose by a softer than expected 0.1%/qtr, adding to the BoE’s concerns of weak demand. We continue to expect the BoE to cut the bank rate twice this year to 3.25%.
Turning our attention to the week ahead will see the release of the Minutes of the February Monetary Policy Board Meeting. However, given the release of the SOMP and series of RBA appearances recently, the Minutes are unlikely to provide much additional news.
In economic data the Q4 25 WPI and January Labour Force Survey are scheduled.
Wage growth is expected to lift 0.8%/qtr based on our CBA wage tracker. The Labour Force Survey is anticipated to print slightly weaker in January after outsized gains in December. We expect employment growth of 15k and the unemployment rate to tick up to 4.2%.
Abroad, US, UK, Canadian, and Japanese inflation data is due. The US FOMC will also release the Minutes of their January meeting.
Across the Tasman, the RBNZ meets. Our ASB colleagues expect the RBNZ to keep the OCR on hold at 2.25%.
