Just weeks ago, expectations were high for the Reserve Bank of Australia (RBA) to offer some monetary relief, but recent developments suggest otherwise. Michele Bullock, the RBA Governor, and her board have opted to maintain the cash rate at 3.60 per cent, with uncertainty about any changes before year-end becoming prevalent among economists.
Commonwealth Bank has revised its projections, delaying anticipated rate cuts from November to February, reflecting broader hesitance in the market after inflation pressures unexpectedly increased. Canstar’s Sally Tindall noted that while there is hope among borrowers for rate relief, inflation remains a formidable challenge, potentially preventing cuts this year.
During the press conference following the recent decision, Bullock’s remarks were notably cautious, a stark contrast to earlier sentiments voiced in August about potential monetary easing. As a result, analysts are adjusting their expectations regarding rate cuts. Market probabilities of a November decrease have fallen to 42 per cent from 58 per cent the day before, with predictions dropping from 95 per cent just a fortnight ago.
Westpac’s senior economist, Mantas Vanagas, highlighted the non-committal nature of Bullock’s statements, which preserved various options for future meetings. Increasing apprehensions about inflation have prompted economists to question whether the RBA will provide any relief before the festive season, with two remaining meeting opportunities—on Melbourne Cup Day and in early December.
Regardless of the cash rate’s status leading into these meetings, many analysts still foresee future cuts in 2024, contingent on forthcoming inflation data. Bendigo Bank’s chief economist, David Robertson, mentioned that while a gradual easing is expected, the timeline of subsequent cuts remains uncertain. The crucial quarterly Consumer Price Index (CPI) report due later this month will significantly influence ongoing monetary policy.
Despite current economic complexities, Westpac’s Luci Ellis remains optimistic about a potential cut in November, albeit with reduced certainty compared to previous forecasts. She asserted that delaying cuts may lead to more significant reductions in future sessions. Bullock’s emphasis on the need for flexibility suggests that while cuts could be on the horizon, nothing is guaranteed.
Overall, the RBA’s cautious approach indicates a balancing act between managing inflation pressures and providing relief for borrowers, underscoring a complex economic landscape that may take time to resolve.