The RBA Will Announce the Cash Rate on December 5th.

The central bank’s last monetary policy meeting of the year is on Tuesday. We anticipate that interest rates will stay unchanged. The majority of experts are inclined towards maintaining the official cash rate during the board members’ final meeting of the year. The RBA Will Announce the Cash Rate on December 5th. In November, the RBA increased interest rates by another quarter of a percentage point to 4.35 per cent. It marks the end of several months where the cash rate has remained steady.

The decision to lift interest rates followed a stronger month of data, including figures that showed inflation continued to ease. The RBA has been increasing interest rates in an attempt to wrangle inflation back to its target rate of between 2 to 3 per cent by late 2025. Annual inflation was down to 4.9 per cent in the year to October.

While the RBA has left room for potential tightening, a majority of economists do not anticipate a rise in interest rates in December.

 

In a survey by comparison site Finder, four out of five economists and experts predicted that the cash rate would remain unchanged on Tuesday. However, nearly half of them foresaw another increase in the coming months.

 

Shane Oliver is the Chief economist and head of investment strategy at AMP. He observed that the RBA seemed less urgent than before the last meeting when interest rates were raised. The softer economic data, including a decline in retail sales, a slight increase in unemployment, slowed house price growth, and weaker-than-expected monthly CPI, contributed to this perception.

 

Moody’s Analytics economist Harry Murphy Cruise pointed out that the lower-than-expected October inflation data, indicating a moderation to 4.9 percent from September’s 5.6 percent, supports the case for unchanged interest rates in December. He emphasized that higher interest rates are dampening demand and, consequently, inflation.

 

In summary, the consensus among experts is that the RBA is unlikely to be the bearer of interest rate hikes in December, given the current economic indicators.

On Monday, The Melbourne Institute, an economic and social policy research center, released figures suggesting that inflation might return to the Reserve Bank’s target range sooner than anticipated.

 

Over the 12 months to November, the institute’s monthly inflation gauge rose by 4.4 percent, reflecting a decrease of 0.7 percentage points compared to the 5.1 percent annual increase reported in October.

 

According to the authors of the monthly report, this significant decline in annual inflation heightens the probability of inflation returning to the target range of 2 to 3 percent before the year 2025.

Oliver suggested that the RBA might decide not to wait any longer due to the high risk of inflation taking an extended time to return to the target, prompting them to proceed with another hike.

 

Recent remarks, particularly those from Michelle Bullock in Hong Kong, have been somewhat hawkish, cautioning that inflation is lingering longer than anticipated in reaching the target. The longer it persists, the greater the risk of it remaining permanently high and taking an extended period to normalize.

 

Oliver highlighted that the elongated gap between meetings during the Christmas/New Year period could also factor into the decision-making process.

 

With the February meeting two months away, there is uncertainty about events in the interim. It leads to the argument that getting it done now (increasing rates) might be a prudent approach.

Oliver noted that economists generally agree that we have reached the peak at 4.35 percent before anticipated rate cuts in the December quarter next year. Nonetheless, he sees a 40 percent chance of an increase in February.

 

In February, we received the December quarter inflation data and additional figures for retail sales and jobs. Along with the RBA’s revised forecasts, the likelihood of a move is higher, according to Oliver.

 

The upcoming revision of monetary policy goals by the government and the RBA will also influence future decisions. A new agreement is expected to be signed, according to Oliver. This agreement is likely to refine the target interest rate. Indications suggest alignment with the review recommendation to target the midpoint of the 2 to 3 percent range. It is specifically 2.5 percent, potentially influencing further movements.

The RBA’s final monthly meeting for the year is approaching, and in the coming year, meetings will occur less frequently.

 

The first meeting of 2024 will commence on 5 February. It will span for two days, with the interest rate decision revealed on the second day.

 

Oliver expressed concern that the altered meeting schedule might elevate the risk of prompt actions. It could be considering another hike, rather than adopting a wait-and-see approach.