Lead

The Reserve Bank board convenes for its latest meeting with a markedly different economic landscape than just weeks ago. A cooling economy, moderating inflation, rising unemployment and an easing of the US-Iran conflict have combined to relieve pressure for further rate hikes, according to ABC Australia. The property market in Sydney and Melbourne is retreating, and global oil prices have fallen — developments that together suggest the central bank may hold rates steady this year, with potential cuts next year.

Coverage comparison

ABC Australia's reporting highlights two key developments that have shifted the outlook. First, the domestic economy is showing signs of slowdown: quarterly growth came in at just 0.3 per cent, and GDP data indicated the economy would have contracted without investment in data centres. Unemployment is rising higher than previously expected, and inflation is showing signs of moderating. Second, on the international front, US President Donald Trump has cancelled strikes on Iran, with the Strait of Hormuz expected to remain closed until Friday, when an agreement is signed. Benchmark oil prices immediately fell to about $US84 a barrel.

In a separate article, ABC Australia details the confusion and divergence in interest rate forecasts. Macquarie cut its three-year fixed loan rate by 0.5 percentage points, and ANZ trimmed its two-year rate by 0.1 percentage points — moves that typically signal expectations of lower rates ahead. However, these cuts stand in contrast to fixed-rate hikes by NAB and Westpac in the past 10 days. The conflicting signals extend to major banks' predictions: Commonwealth Bank forecasts two cuts next year, ANZ predicts the RBA will hold steady, Westpac expects two more increases, and NAB anticipates one more hike.

Key claims

  • Oil reserves and Iran: US oil reserves are at their lowest level since 1983, with less than 350 million barrels remaining, and a 172-million-barrel drawdown is underway. The Strait of Hormuz will remain shut until Friday when the agreement is signed. Iran may gain control over Gulf shipments and charge fees, and the US may need to pay reparations and lift sanctions. Oil prices fell to $US84 a barrel.
  • Domestic economy: The quarterly growth rate was 0.3 per cent, and GDP data showed the economy would have shrunk without data centre investment. Unemployment is rising higher than expected, and inflation is moderating.
  • Property market: The property market in Sydney and Melbourne is retreating due to affordability issues and the federal government's mooted tax changes to limit property investors. Property values have lifted 400 per cent in the past 25 years.
  • Central bank expectations: The RBA has a dual mandate that includes "full employment." The economy is cooling, and there is near-universal consensus that rates will remain on hold this year, with possible cuts next year.
  • Rate forecasts: Macquarie cut its three-year fixed loan by 0.5 percentage points; ANZ cut its two-year loan by 0.1 percentage points; NAB and Westpac implemented fixed-rate hikes in the past 10 days. Commonwealth Bank predicts two cuts next year; ANZ predicts a hold; Westpac predicts two more increases; NAB predicts one more increase. Futures markets predict a move higher to 3.6 per cent, but the yield on two-year Australian government bonds has dropped.
  • International context: Trump walked off an NBC interview with Kristen Welker. The European Central Bank is likely to raise rates on June 11. The unresolved question of Israel's attacks on Lebanon remains.
  • Bank stocks: Bank stocks are experiencing a sharp pullback, with CBA constantly jockeying for the top spot among the most valuable companies.

Perspectives

The Reserve Bank's dual mandate, which includes both price stability and full employment, underscores the tension in its policy decisions. With inflation moderating but unemployment rising, the RBA faces a delicate balance. Federal government tax changes and Middle East hostilities have created uncertainty, but the recent easing of both pressures provides room for a pause.