By 
Australia’s central bank decided to keep interest rates unchanged on Tuesday, as anticipated, signaling that its restrictive monetary policy will likely persist for the time being. This indicates that borrowers should not expect any rate cuts in the near future, including over the holiday season.
The market showed little reaction to the decision, with the Australian dollar holding steady at $0.6595. Market expectations indicate a minimal chance of a rate cut this year, with the first potential easing not expected until May 2025.
At the conclusion of its November policy meeting, the Reserve Bank of Australia (RBA) opted to maintain rates at a 12-year high of 4.35%. The central bank reiterated its stance that it was neither ruling out nor committing to any specific policy changes. This message echoed language used in September’s policy statement.
Despite the lack of explicit guidance on future rate hikes or cuts, market expectations leaned toward a steady approach, given the ongoing strength in the labor market and persistent inflationary pressures in the third quarter.
In a statement, the RBA acknowledged the decline in headline inflation, noting that while it has significantly reduced and will remain lower for some time, underlying inflation—which better reflects inflationary momentum—remains too high. This reinforces the need for vigilance against inflationary risks.
The RBA has maintained its restrictive stance for over a year, holding the cash rate at 4.35%, up from the pandemic low of 0.1%. The central bank believes this level is sufficient to guide inflation back within the target range of 2-3% while also preserving job growth.
This conservative policy position contrasts with central banks in the U.S., eurozone, Britain, Canada, and New Zealand, which have eased rates as inflationary pressures ease globally.
In the third quarter, Australia’s headline inflation slowed to 2.8%, returning to the target range for the first time since 2021, largely due to government rebates on electricity bills. However, underlying inflation stood at 3.5%, still above the middle of the target range.
RBA forecasts suggest that underlying inflation, as measured by a trimmed mean, will ease slightly to 3.4% by year-end but is not expected to return to the target band until 2026.
The central bank also downgraded its GDP growth forecast for the year to 1.5%, down from 1.7%, partly reflecting weaker household consumption. The outlook for next year was also reduced to 2.3%, down from 2.5%.
When asked about the likelihood of near-term rate cuts at a post-meeting press conference, Governor Michele Bullock emphasized caution. “We believe the current policy settings are appropriate,” she said. “We’ll remain alert to changes and ready to act if needed, but we don’t anticipate cuts in the immediate future.”
Despite the overall slowdown in economic growth, Australia’s labor market has remained unexpectedly resilient, with employment gains averaging 3.1% over the past year—double the rate seen in the U.S.—and the unemployment rate holding steady at 4.1%.
This strong labor market suggests that a rate cut this year is unlikely, keeping the RBA among the last few central banks to ease monetary policy.
In a separate statement on monetary policy, the RBA highlighted that financial conditions in Australia are still not as tight as in other major developed economies, even after recent rate cuts abroad.
Shane Oliver, Chief Economist at AMP, noted that the RBA’s policy guidance now appears more neutral. He observed that Bullock’s comments were less hawkish, particularly her decision not to rule out the possibility of future rate cuts.
Oliver speculated that the RBA may wait until inflation data for the December quarter, due at the end of January, before considering any rate cuts. He forecasted that the RBA could start easing rates as early as February 2025, well before the May timeline currently priced in by markets.
Comments