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Australian Service Sector Contracts as RBA Holds Rate Meeting

The Australian service sector contracts slightly with January's S&P Global / Judo Bank Services PMI at 49.1. Amidst this, the RBA holds a crucial rate meeting, with Governor Bullock to address the nation's monetary policies.

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Geeta Pillai
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Australian Service Sector Contracts as RBA Holds Rate Meeting

As January 2024 drew to a close, the Australian service sector signaled a slight contraction with the S&P Global / Judo Bank Services Purchasing Managers' Index (PMI) settling at 49.1. This figure, while an improvement from the previous month's 47.1, still indicates a decrease in business activity. Amidst this, the Reserve Bank of Australia (RBA) convened for a crucial meeting on February 5 and 6, with the central banking system grappling with prolonged employment and inflation challenges.

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PMI Data and the Service Sector

The S&P Global / Judo Bank Services PMI for January 2024, at 49.1, exhibited a modest improvement from December's 47.1. However, it still marked a contraction in the service sector, with any reading below 50 pointing towards a decrease in business activity compared to the previous month. The Composite PMI, another key indicator, was reported at 49.0.

According to the Judo Bank survey, incoming new business remained static, and foreign demand continued its downward trend, albeit at a slower pace. Australian service providers persisted in addressing their outstanding business, synchronizing with an augmented workforce capacity.

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RBA's Anticipated Decision on Cash Rate

The RBA's meeting, scheduled amidst these challenging economic indicators, was expected to maintain the cash rate at its current 12-year high. This anticipated decision underscored the Australian economy's resilience, as businesses endeavored to expand their workforces, to meet consumer demand outpacing their supply capabilities.

Future Monetary Policy Direction

Following the meeting, RBA Governor Bullock is slated to hold a press conference, introducing a novel approach to the central bank's communication strategy. The address may delve into the PMI data, the underlying logic behind the cash rate decision, and possibly sketch out the bank's future monetary policy direction.

Despite a record rise in interest rates and a contraction in service activity, the Australian economy has demonstrated resilience. Key activity measures are recovering, price indexes are gradually declining, and employment growth persists. These trends suggest that while a looser monetary policy is a way off, the end of interest-rate increases could be on the horizon.

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