SYDNEY: Australia’s economic growth unexpectedly accelerated last quarter, adding to the case for the Reserve Bank to raise interest rates again as inflation remains stubbornly strong.
Gross domestic product (GDP) advanced 0.4% in the three months through June, exceeding forecasts for a 0.3% gain, data from Australian Bureau of Statistics showed yesterday.
From a year earlier, the economy expanded 2.1%, compared with a median estimate of 1.8%.
“The economy risks not slowing quickly enough for the Reserve Bank of Australia (RBA) to achieve its inflation objectives,” said Alex Joiner, chief economist at money manager IFM Investors.
“As such it should raise rates in either September or November.”
The Australian dollar fluctuated around the mid-71 US cents area after the data.
The yield on policy-sensitive three-year notes extended an earlier rise to trade as much as 11 basis points higher at 4.83% as investors lifted expectations the RBA’s hiking cycle will extend into next year.
Markets priced the RBA will hike by November, with a move in September seen as more likely than not, according to swaps data compiled by Bloomberg.
Traders also priced about an 80% chance the central bank will hike again in the first quarter of next year, up from a 62% probability prior to the release.
The result suggests activity has so far withstood the RBA’s efforts to slow the economy and rein in persistently elevated inflation.
The GDP report is among key data the RBA will scrutinise ahead of its Sept 28 and 29 meeting to decide whether it needs to tighten policy further to bring the economy back to balance. The RBA last month kept rates unchanged at 4.35% for a second straight meeting after hiking three times between February and May.
The GDP data is adding pressure to Australian bonds which are caught up in a global sell-off amid fears of ballooning government spending, sticky inflation and resilient growth from the data centre boom.
Australia’s policy-sensitive three-year yields were trading at their highest since March following the data, while benchmark 10-year bond yields were at levels unseen since July 2011.
“While there are some complex stories under the hood on the composition of household spending, markets have taken one look at the GDP beat, especially in year-on-year terms, and saw a green light to sell-off further,” said Robert Thompson, head of economics and rates strategy at Royal Bank of Canada’s Australian unit.
“This seems way overdone,” he added. “But momentum, via the global sell-off we’ve been through lately too, not just Australia, is proving impossible to fight.”
Last week, an overshoot in inflation prompted a number of economists to predict another RBA rate hike as early as September, scrapping expectations it would stand pat for the remainder of the year.
The shift followed hawkish minutes from the central bank’s August meeting, when policymakers signalled a low tolerance for upside surprises on inflation.
The RBA aims to hit the midpoint of its 2% to 3% inflation target, a level it hasn’t reached in about five years.
The GDP data span a large portion of the Middle East conflict that unleashed a global energy shock and exacerbated inflation pressures in a number of economies.
The United States and Israel’s war on Iran war has recently intensified with both sides resuming attacks.
“This is a robust result in challenging international circumstances,” Treasurer Jim Chalmers said in a statement after the release.
“Annual growth in Australia was as strong or stronger than every major advanced economy, equal to the United States and much stronger than the rest.” — Bloomberg
