The RBA held monetary policy unchanged today and issued updated quarterly forecasts. But anyone hoping for signs of an approaching rate cut will be disappointed, despite lower GDP growth forecasts.
At its meeting today, the Board decided to leave the cash rate target unchanged at 4.35%, where it has been since November last year, and the rate paid on Exchange Settlement balances (bank reserves) unchanged at 4.25%.
There was a substantial rewording of the governor's statement, but the key points remained the same as the last meeting in September.
Given that CPI has been lowered by temporary electricity subsidies, the emphasis has switched from headline to underlying inflation which "remains too high".
The output gap is still positive and the labour market remains tight. "Wage pressures have eased somewhat but labour productivity is still only at 2016 levels, despite the pick-up over the past year."
The economic forecasts are broadly similar to those published in August. But the "outlook remains highly uncertain".
"Taking account of recent data and the updated forecasts, the Board’s assessment is that policy is currently restrictive and working broadly as anticipated. But there are uncertainties. The central projection is for growth in household consumption to increase from the second half of this year as income growth picks up – and there is tentative evidence of an increase in spending in the September quarter. But there is a risk that any pick-up is slower than expected, resulting in continued subdued output growth and a sharper deterioration in the labour market. More broadly, there are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slow growth in the economy and weak productivity outcomes at a time of excess demand, and while conditions in the labour market remain tight."
In terms of policy, "While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high. The November SMP forecasts suggest that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint. This reinforces the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out. Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range."
Taking questions at the press conference on whether a rate hike was realistically possible, Governor Bullock discussed upside inflation risks to inflation stemming from strength in the periphery measures of labour market strength and persistently high services inflation.
GDP estimates were revised slightly lower for 2024 (+1.5%), 2025 (+2.3%) and 2026 (+2.2%), despite factoring in an expected pick-up in Chinese growth as a result of the recent stimulus.
2025 unemployment was also revised up from 4.4% to 4.5% next year, with wage growth revised down from +3.5% to +3.2% next year.
CPI inflation was also revised down, with the headline expected to hit the midpoint of the 2%-3% range by the end of 2026.
The changes in forecasts were in part a reflection of the cash rate assumptions being held +0.1% higher in 2025 and +0.2% higher in 2026 due to changes in market pricing.
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Fin-X Wealth View
The Reserve Bank has altered its messaging to deal with the impact of government subsidies. But there is no discernable change to policy and we learned very little from the releases today.
Market pricing of the path of the cash rate is essentially unmoved. The first cut isn't fully priced in until April next year, with a roughly 40% chance of a quarter-point cut to 4.10% in February.
Source: RBA, 5th November 2024
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