Week Ahead: RBA Holds Rates, China Manufacturing Struggles, Strong Growth in India

Asia week ahead: Australian central bank likely to keep rates on hold

The Reserve Bank of Australia (RBA) is likely to keep rates untouched at 4.1%, while inflation reports from the region are likely to show moderating readings.

 

RBA likely to keep rates untouched at 4.1%

Following the surprisingly large fall in May headline CPI inflation to 5.6% year-on-year from 6.8% in April, there seems little prospect of the RBA hiking rates again following what, by its own admission, was a finely balanced decision in June. That hike only got over the line because of the large upward spike in April inflation, so it would seem extremely odd to hike again if inflation surprises on the downside.

We are keeping an open mind on one final hike this cycle, and the September meeting looks like the most likely candidate to us. July CPI will have to absorb a large electricity tariff spike of 20% YoY, or more by some estimates, and the base effects are less helpful over the third quarter too. But that will probably be it for the RBA, in our view.

 

China Caixin PMI numbers to show struggling sector

Caixin PMI data will take their cue from the official PMI numbers due out on 30 June. These are likely to show that the manufacturing sector is still struggling, but may also show service sector strength waning, as re-opening pent-up demand starts to normalise again. 

 

India's strong PMI reading points to strong growth

Both India’s manufacturing and service sector PMIs are running at extremely strong levels. The manufacturing sector, in particular, has shown an acceleration in recent months, but may now be due a slight correction lower. Not being very exposed to either China or the global semiconductor slowdown is helping India.