Asia week ahead: Australia rate decision, data on China, India, Japan
At a Glance
Per the full note , the Reserve Bank of Australia is expected to hold the cash rate at 4.35% at Tuesday's meeting, with inflation surprising decisively to the downside—headline CPI at 3.9% YoY versus the RBA's 4.8% forecast—strengthening the case for an extended hold through year-end. The desk also flags China's July CPI and PPI as likely to moderate, alongside soft credit data, and India's July CPI expected to hold at 4.4% YoY. With no internal coverage on the AUD or INR, the focus remains on the RBA's forward guidance and the ensuing policy path divergence with the Fed.
Key Takeaways
- 01RBA expected to hold cash rate at 4.35% at Tuesday's meeting.
- 02Q2 inflation surprised to the downside: headline CPI 3.9% YoY vs RBA forecast 4.8%.
- 03China's July CPI and PPI expected to moderate, with weak credit demand persisting.
- 04India's July CPI forecast to hold steady at 4.4% YoY, with food inflation softening.
Full Analysis
What the desk is arguing
The RBA is set to keep rates unchanged at 4.35%, with the second-quarter inflation surprise materially shifting the policy calculus. Headline CPI came in at 3.9% YoY, well below the RBA's 4.8% forecast, driven by softer housing and transport costs, while the trimmed mean CPI fell to 3.6% YoY versus a 3.8% estimate. This confirms that price pressures are easing faster than the central bank envisaged, pointing to an extended hold through year-end.
The desk's thesis hinges on the gradual moderation of underlying inflation, with services inflation still elevated at 4.0% YoY but not accelerating. The alternative read—that the RBA might need to hike again—is implicitly rejected, as the data do not support a near-term tightening bias. The market is likely to focus on any hawkish surprises in the statement, but the bar for resuming hikes appears high.
Market Implications
Watch the RBA statement for any shift in forward guidance; an extended hold would likely keep AUD under pressure as the Fed remains on a tightening bias. China's inflation and credit data will be crucial for risk sentiment in the region, while India's CPI will influence INR and RBI policy expectations.
From the original
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