CFS Market Update: September 2024 

• The RBA did not move on interest rates in September, keeping them steady at 4.35%
• The Fed delivered a significant interest rate cut of 50 basis points
• The ECB cut rates for the second time this year, as predicted by markets
• China announced a wide-ranging stimulus package.

On 24 September, the RBA maintained its 4.35% rate, making it the seventh meeting with no change.

Immediately following the decision, RBA governor Michele Bullock stated: “Based on what we know at the moment, rates will remain on hold for the time being … Inflation is still above our target and it’s proving to be sticky. Progress in getting underlying inflation down has slowed.”

The RBA board needs to be confident that inflation is moving sustainably towards the target before any decisions are made about a reduction in interest rates, she said.

“We really need to see progress in underlying inflation coming back down towards the target,” she added.

The consumer price index (CPI) is back within the RBA’s 2-3% target zone, coming down to 2.7%, its lowest level since August 2021. However, underlying or core inflation is still sitting at 3.4%.

Interest rates are coming down in countries that are finally seeing inflation ease.

The Fed cut its rate by half a percentage point, bringing its range between 4.75%-5%. This was helped by solid economic data, thanks to its equity market, and inflation slowing to 2.5% in August. It has signalled more cuts to come.

Following a unanimous decision, the ECB decided to cut interest rates by 25 basis points – its key interest rate now at 3.5%. Eurozone inflation dropped to 2.2% in August, just above its 2% target. ECB President Christine Lagarde said it was “not pre-committing to a particular rate path”. The central bank last cut rates in June.

There are two more monetary policy decisions left in 2024 for these central banks: the ECB on 17 October and 12 December, followed by the RBA meetings on 5 November and 10 December, and then the Fed on 7 November and 18 December.

Meanwhile, on 24 September, the People’s Bank of China announced a wide-ranging stimulus package that included rate cuts, funding support for the stock market, liquidity for banks and property reforms. This is in contrast to China’s previous drip-feed policy approach, demonstrating level of commitment and urgency to improve its economic landscape.

Despite the higher inflation and interest rate environment this year, markets have remained strong. And following the news of a fall in US inflation, the Fed’s September rate cut and improved consumer sentiment, stock markets hit record highs.

Based on the latest data, Australian employment continues to grow. The RBA’s Bullock said she expects that the drop in CPI will mean Australians will start to see some cost-of-living relief coming into play, including the lowering energy and fuel prices.

If China’s stimulus policies and rate cuts start to restore investor confidence, it should help revive its stock market and create new investment opportunities.

Certain banks and market experts believe a rate cut from Australia’s central bank won’t come through until February 2025. But at least underlying inflation is coming down, although not at the pace as we’re seeing in other countries.

But is it still fair to rule out a cut in 2024? Some market commentators believe that the door is open, regardless of what the RBA says. In addition to this, the central bank is facing growing political pressures to deliver rate cut relief before Christmas.

Last month, we covered how historically, the RBA has been aligned with the Fed and ECB’s rate decisions, but it is now diverging. Australia will need to continue to brace for an extended “higher for longer” interest rate environment, until inflation moves further down.

If you’re wondering about whether you should make changes to your investments, we recommend connecting with your financial adviser to review your investment goals, identify any potential opportunities, and make changes if necessary.  

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