What to expect from the RBA meeting in August 2024

In the minutes of its previous meeting in June 2024, the RBA Board took a close look at Australia’s inflation. While limited inflation data was available from the monthly CPI indicator, the Board acknowledged an increased risk that “sustainable progress towards the inflation target may be slower than forecast.”

“Members acknowledged that if inflation expectations were to rise materially from current levels, it could require significantly higher interest rates to bring inflation back to target, with adverse implications for growth in output and employment.”

RBA governor, Michele Bullock, said in the press conference following the previous meeting that while the June CPI figures are important, the Board’s decision will also be affected by other factors, such as employment indicators.

“I wouldn’t say that the case for a rate rise is increasing. What I would say…is that there’s been a few things that have made the Board alert to the upside risk.”

Speaking in an interview following the most recent CPI release, Federal Treasurer Jim Chalmers said that though inflation was indeed proving ‘sticky’ and ‘stubborn’, it was encouraging that underlying inflation came down for the sixth consecutive quarter, and monthly inflation was down as well. However, he declined to pre-empt or predict the RBA’s decisions.

Prior to the CPI release, the Treasurer noted that the RBA considers a wide range of factors when making its cash rate decisions, not just inflation:

“I think sometimes the commentary too easily forgets that at the start of this year and the March quarter National Accounts, we saw the economy was very soft. We saw discretionary spending had more or less disappeared in our economy, we saw savings rates had come off quite substantially, and so no doubt the Reserve Bank board when it takes its decision independently, it weighs up all of these things, the inflation numbers, the state of the jobs market and the like.”

ANZ’s economists are maintaining their stance that the national cash rate will stay on hold at 4.35% in August 2024, until the RBA cuts the cash rate in February 2025. This would commence an easing cycle that would see the cash rate fall to 3.60% by that year’s end.

However, ANZ expects the RBA will still consider raising the cash rate at the upcoming  meeting, and keep this prospect in mind at future meetings:

“The higher-than-forecast Q2 trimmed mean inflation outcome is likely to see the Board retain a hawkish tone in the post-meeting statement, which the Governor will echo in the press conference.”

Prior to the Q2 CPI release, Commonwealth Bank’s economists described the release as “crucial” and “critical for the Australian economy,” with the figures likely to “make or break the near-term case for an interest rate increase at the August Board meeting.”

However, given that the recent CPI figures were broadly in line with the RBA’s own forecasts, an on-hold decision in August 2024 should be “straightforward” according to Commonwealth Bank:

“Whilst the Board will have welcomed the latest inflation data, there is no need to deviate from the recent script.  Indeed it is too early to shift tone.  Key economic data is all evolving in the way the RBA has recently anticipated.  But the Board will wish to retain full optionality on the policy outlook for the time being.”

Looking beyond August 2024, Commonwealth Bank is forecasting a 25-point rate cut in November 2024, provided trimmed mean inflation continues to decline and unemployment continues to experience an upward trend.

Even before the CPI release, NAB was sticking to its updated forecast that regardless of the inflation risk, the RBA should keep the national cash rate on hold until May 2025, when an easing cycle is expected to begin:

“We acknowledge the upside risks to rates in the near-term, but we ultimately see the RBA maintaining its strategy of trying to hold onto labour market gains. That sees the need to remain on hold for longer.”

According to NAB, the easing cycle to commence in May 2025 would see the cash rate drop to 3.6% by December 2025, and fall still further in 2026.

Westpac is forecasting that rates should remain on hold in August 2024, only to start cutting the cash rate by 25 points per quarter starting in November 2024, reaching a terminal rate of 3.10% by the end of 2025.

“Monetary policy operates with a lag, so rate cuts need to start ahead of inflation reaching target. If the Board waits too long, it will risk undershooting the target for no benefit. So rate cuts are likely in the near future, provided inflation continues to traverse the trajectory that the RBA Board is seeking to achieve.”

That said, Westpac economists acknowledge that the RBA is not in a hurry to cut rates, given the lingering inflation risks, and may be “deliberately choosing a ‘not quite as high for a bit longer’ strategy, in order to hold onto the gains made in getting unemployment down.”

To help you stay up to date with the latest updates to the national cash rate, as well as the changes to interest rates on home loans and savings accounts that follow, be sure to visit the RateCity RBA Rate Tracker hub.