The Reserve Bank of Australia has left its key interest rate unchanged for an eighth meeting in a row as it awaits more evidence inflation will soon return to its preferred target range.
The RBA board ended its two-day meeting on Tuesday by keeping its cash rate at 4.35%, a move widely expected by economists and financial markets.
The board only considered the option of leaving the interest rate unchanged, matching the approach it took at its September meeting, six weeks ago.
In a press conference on Tuesday, governor Michele Bullock refused to be drawn into giving guidance as to the potential for rate cuts or rises next year, but said underlying inflation in the September quarter was “still too high”.
“We have made good progress. But as we’ve seen throughout the year, this last part of the job of getting inflation down is not easy or straightforward,” she said.
“We’re watching the data closely, and we’re not ruling anything in or out.”
It’s now a year since the central bank’s last rate move, the 13th increase in a series that began in May 2022. Prior to today’s verdict and related commentary, investors weren’t fully pricing in a rate cut until the middle of 2025.
Annual headline inflation dropped to 2.8% in the September quarter, or the lowest in more than three years. Underlying inflation, which stripped out volatile movers, remained at 3.5%, or outside the RBA’s 2%-3% target band.
“While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high,” the RBA said in an accompanying statement.
The RBA maintained its wording that it had not eliminated the chance of another interest rate rise if it was needed to bring inflation to heel.
“The November Statement on Monetary Policy forecasts suggest that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint,” it said.
“This reinforces the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out.”
The RBA has also updated its quarterly forecasts for GDP, inflation, wage growth and other key economic indicators. Its previous predictions, last issued in August, projected Australia’s economy picking up pace from the current December half, with core inflation – known as the trimmed mean – settling below 3% by the end of 2025.
Other major economies are starting to cut interest rates to revive growth. Australia’s borrowing costs typically did not rise as much as many counterpart countries but they are also not expected to fall as rapidly provided the labour market remains strong.
Tuesday’s rates decision was anticipated, with the Australian dollar and stocks little changed in its aftermath.
The updated quarterly forecasts that the RBA uses for its interest rate setting suggest the Australian economy will grow slightly less in the second half of this year than predicted in August. One reason is that consumption will grow slower than expected in part because households are spending less of their stage-three tax cuts than forecast.
“Our overall assessment is that there continues to be excess demand in the economy, but that it has moved closer to balance,” the RBA’s updated Statement on Monetary Policy showed.
The forecasts cite market expectations of where the RBA’s cash rate will be. On those forecasts, taken as of 30 October, the central bank’s key rate will only see its first reduction by the middle of next year.
Public demand growth will help shore up the economy amid subdued investment activity by businesses. GDP growth will still pick up from the 1% annual pace in the year to June to 2.3% by next June but that will start to face headwinds as net migration rates retreat, the RBA’s updated Statement on Monetary Policy showed.
Most of the other inflation and employment forecasts are similar to three months ago. The trimmed mean measure of inflation that the RBA plays most heed to will ease slightly faster than predicted, touching the top end of its 2%-3% band by June 2025 and reach the mid-point of 2.5% by the end of 2026.
Weak productivity growth, particularly as many of the jobs being added are in industries such as healthcare, may continue to slow the drop in services inflation.
Global uncertainty, however, “creates two-sided risks to the domestic outlook”. The statement mentions China potentially growing faster than anticipated as the effect of various stimulatory measures take effect, a shift that would help boost demand and prices for Australian commodity exports.
The statement makes no mention of the US elections. Growth in the world’s biggest economy has been better than expected in recent years but expansion is likely to ease next year.
