There were no surprises in Tuesday’s RBA announcement, with Reserve Bank governor Michele Bullock confirming a rate cut was not discussed at the meeting.
Economists and analysts widely agreed there would be little appetite for a pre-Christmas cut with underlying inflation proving 'sticky' at last print and stronger-than-expected employment figures.
However, in the statement issued with its decision, the RBA board appeared to adopt a more dovish tone, including:
The board is gaining some confidence that inflationary pressures are declining in line with these recent forecasts, but risks remain.
It also scrapped its previous language about “not ruling anything in or out” when it came to interest rates.
In her usual post-decision media conference, RBA governor Michele Bullock acknowledged the softening, saying the board's views were "evolving".
No cut considered
However, she also made clear the board did not explicitly consider an interest rate cut at the December meeting.
This is despite Australia’s economic growth and productivity slumping near historic lows, prompting some commentators to warn the RBA against delaying a rate cut for too long.
She acknowledged the Australian economy was seeing "the slowest pace of growth since the early 1990s" outside of the pandemic.
Although wages growth and household consumption have recovered more slowly than forecast, she said indications suggested a pick-up in consumption in October and November.
Inflation still the enemy
Again, Ms Bullock reiterated that underlying inflation remains too high and bringing it to target is its "highest priority".
She said prices had risen 16% in the past three years and that was what was causing Australians the most pain.
“We think things so far are moving in line with our forecasts, and if they continue to move in line with our forecasts, then at some point, we’re going to be convinced that inflation is coming back to the band, and we’ll be in a position to consider that [a cash rate cut],” she said.
She reiterated the board's next policy decision, set for 17-18 February, will be dependent on the economic data.
No clues on rate cut
All bets for a rate cut are now off until 2025, meaning mortgage holders will be looking to next year for interest rate relief.
The cash rate has now been held at 4.35% for 13 consecutive months, having last been raised by 25 basis points in November 2023.
Since then, headline inflation has moderated, although underlying inflation, the RBA’s preferred measure, remains outside of its 2% to 3% target zone.
As of the ABS' October read, underlying inflation climbed to 3.5% on an annual basis, up from 3.2% the previous month.
The next major inflation read, covering the December quarter, is due on 29 January.
RBA change for 2025
The February RBA board meeting also looks set to the be the last time the board meets under its current structure.
Legislation to create a dual structure, the key recommendation of an independent review of the RBA in 2023, was passed during the final session of federal parliament last month.
As a result, the board is scheduled to be split into two separate committees – one in charge of interest rate setting and the other of overseeing governance.
The RBA governor, and some other board members, will sit on both committees.
The change will need to be ratified at February’s board meeting and is expected to take effect from 1 March.
Political undertone
The change initially had broad support, but the opposition withdrew its backing, fearing the government would use the split to stack the RBA board with political appointments.
Three of Australia’s big four banks, as well as a broad consensus of economists, expect the first cut to the cash rate in more than four years to come in May 2025 – the same month the federal election is due.
The government is probably hoping an interest rate cut occurs before then to shore up its cost-of-living credentials at the polls.
As yet, there's been no announcement as to who the government will appoint to either of the RBA board committees.
Ms Bullock would not be drawn on the appointments, other than to say she had asked federal treasurer Jim Chalmers to ensure there would be some continuity on both boards.
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