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The RBA has kept rates on hold again as its grapples with the combination of slowing growth, rising unemployment and falling inflation.
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Reserve Bank reveals latest cash rate decision
19 March 2024
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The Reserve Bank of Australia has decided to keep rates on hold at 4.35 per cent as it awaits further data on inflation for the March quarter.
In its statement, the RBA said recent data suggests that inflation continues to moderate, in line with the RBA’s latest forecasts.
"The headline monthly CPI indicator was steady at 3.4 per cent over the year to January, with momentum easing over recent months, driven by moderating goods inflation. Services inflation remains elevated, and is moderating at a more gradual pace," the RBA said.
"The data are consistent with continuing excess demand in the economy and strong domestic cost pressures, both for labour and non-labour inputs."
The Reserve Bank noted that while there have been favourable signs on goods price inflation abroad, services price inflation has remained persistent and the same could occur in Australia.
AMP chief economist Shane Oliver said the RBA will likely be in a position to start cutting at its June or August meeting with the bank now dealing with a combination of slowing growth, rising unemployment and falling inflation.
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CreditorWatch chief economist Anneke Thompson agreed that a rate cut could be expected “some time in the middle of the year, rather than the latter half,” in line with central banks in the US, UK and Europe.
“All indicators point to inflation falling faster than last year’s forecasts,” she said, and a rapid uptick in the unemployment rate could also prompt the RBA to bring rate cuts forward to preserve employment gains achieved since the pandemic.
“Thus far, strong employment and a low unemployment rate have given the board confidence that their monetary policy settings are not adversely impacting the jobs market,” Ms Thompson said.
“However, monthly hours worked by Australians peaked in June 2023, and has been on a downward trend since. Businesses are also reporting capacity utilisation edging downwards, which is a good forward leading indicator of higher unemployment.”
BDO economics partner Anders Magnusson said inflation would return to target more quickly than the RBA’s expectations. “The first cash rate cut is looking closer every day,” he said.
“We expect that the next forecast by the RBA will show inflation returning to the target range more quickly than expected, suggesting that a cut is also closer than expected.”
Mozo finance expert Rachel Wastell said the comparison site’s database showed another rate hike was “unlikely” despite the hawkish tone of the RBA’s monetary policy decision.
“While the RBA made it clear a further increase in the cash rate can't be ruled out, moves on the Mozo database do make another hike seem unlikely,” Ms Wastell said.
“Lenders have been slashing fixed rates as they anticipate a rate cut, and the fact the cuts favour shorter terms indicates they're predicting at least one cut will come within the next year.”
RSM chief economist Devika Shivadekar said the RBA’s conservative language was necessary to manage inflation expectations.
“Providing hope of a rate cut too early, could instil too much confidence in households and businesses, which could potentially spur spending,” Ms Shivadekar said.
She said RSM predicted the cash rate would be cut by the third quarter of 2024.
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