Those calling for the RBA to cut its benchmark interest rate on Melbourne Cup have backed the wrong horse – all they got was a hoarse voice!
The RBA statement accompanying the Bank’s 5 November 2024 rates decision clearly stated the obstacles to any near term rate cut – and reiterated its ‘highest priority’, which is the return of inflation to target within a reasonable timeframe.
The biggest obstacle was still-too-high underlying inflation gauges. The RBA noted that while the headline Consumer Price Index (CPI) continued to trend lower in the September 2024 quarter, this was expected due to declines in fuel and electricity prices over this period, aided by government-instigated temporary cost of living relief. The RBA was at pains to point out here that underlying inflation (as represented by the so-called ‘trimmed mean’ CPI) was 3.5% over the year to the September quarter, a figure still ‘some way’ from the midpoint of the Bank’s inflation target range of 2-3%.
The RBA rates decision acknowledged that the economic outlook was uncertain. While conceding that output growth was weak, the Bank at the same time noted the strong employment growth over the September 2024 quarter. It also expects growth in household consumption to increase from the second half of this year, as household income growth picks up.
Looking to the interest rate outlook, the RBA’s rates decision stated that its latest forecasts suggest it will be some time yet before inflation is sustainably in the target range.
Today’s rates decision unambiguously indicated that the RBA is still not interested in playing Santa to mortgage holders over the near-term, saying it remained ‘vigilant to upside risks to inflation’ and that policy ‘will need to be sufficiently restrictive until the (RBA) Board is confident that inflation is moving sustainably towards the target range.’
There is one more chance for a rate cut this year, with the next RBA meeting timetabled for 9-10 December 2024, but most market pundits do not expect such a move until early calendar 2025.
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