Central Bank holds fire in November

Hold priced in by markets: At its meeting on 4–5 November, the Reserve Bank of Australia (RBA) decided to keep the official cash rate (OCR) at 4.35%, meeting market expectations and marking the eighth consecutive hold since late 2023. Moreover, the Bank held the interest rate on exchange settlement balances at 4.25%.

Sticky price pressures and inflationary risks dissuade monetary policy easing: The RBA’s decision to stand pat was primarily influenced by sticky inflation. The Bank noted that the decrease in price pressures in Q3 reflected temporary government measures to ease cost-of-living pressures and that it does not expect inflation to sustainably return to the mid-point of the 2.0–3.0% target band before 2026. Moreover, the RBA highlighted that core inflation remains entrenched above its target range and that “aggregate demand remains above the economy’s supply capacity” in spite of tight financing conditions. Meanwhile, signs of a strong labor market—including a record-high participation rate and elevated vacancies—added impetus to this decision, as did persistent upside risks to the inflation outlook, particularly heightened global uncertainty.

RBA to kick off its loosening cycle in 2025: In its communiqué, the Bank doubled down on its commitment to returning inflation to the target range while remaining vigilant regarding risks to the inflation outlook; the RBA stated that “policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range”. Accordingly, in a subsequent statement, Governor Michele Bullock hinted that a monetary policy loosening cycle is unlikely in the near term. The vast majority of our panelists expect the Bank to hold fire at its final meeting of the year on 9–10 December, before loosening its stance in 2025; our Consensus is for just under 100 basis points of cuts next year.

Panelist insight: ING’s Deepali Bhargava commented: “Going forward, we expect both headline and trimmed mean CPI inflation to ease in 4Q24, however, the latter is likely to remain above the target band. Economic activity including retail sales remains weak despite the income tax cuts earlier this year. Weaker house prices are likely to add to subdued consumer sentiment. On balance, given considerable uncertainty around the global outlook including the outcome of US elections, we expect the RBA to stay on hold at the next policy meeting in December as well, although with a dovish tilt.”

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