RBA Puts too Much Weight On Output Gap Fears -- Market Talk

Dow Jones08-23

0607 GMT - The Reserve Bank of Australia's current hawkish narrative hinges far too much on the idea that demand is still outstripping supply in the economy, says Andrew Boak, economist at Goldman Sachs. Measures of output gaps are unreliable and backward-looking, with unemployment a better gauge of the balance of activity in the economy, he adds. Boak expects the RBA's first rate cut in February, but he continues to see risks skewed to a cut in late 2024 if the unemployment rate rises from 4.2% currently into the 4.5%-5% range by year end. In this scenario, the RBA would likely follow a similar pattern to the RBNZ, which pivoted to dovish guidance and announced a surprise rate cut this month, he says. (james.glynn@wsj.com; @JamesGlynnWSJ)

(END) Dow Jones Newswires

August 23, 2024 02:08 ET (06:08 GMT)

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Boak expects the RBA's first rate cut in February, but he continues to see risks skewed to a cut in late 2024 if the unemployment rate rises from 4.2% currently into the 4.5%-5% range by year end. In this scenario, the RBA would likely follow a similar pattern to the RBNZ, which pivoted to dovish guidance and announced a surprise rate cut this month, he says. 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