What to expect from the RBA meeting in December 2024

Addressing the annual dinner for the Committee for Economic Development of Australia (CEDA), RBA governor Michele Bullock said that despite inflation falling from its previous peak, there is still some way to go before inflation is sustainably within the RBA’s target range of 2% to 3%, outside the influence of temporary factors such as electricity rebates and declining fuel prices.

“The Board sets monetary policy to achieve domestic policy objectives – that is, for inflation to be about 2.5 per cent and the labour market at sustainable full employment. As it currently stands, underlying inflation is still too high to be considering lowering the cash rate target in the near term.”

According to the RBA’s November 2024 Statement on Monetary Policy, the cash rate is forecast to decline by mid-2025, in line with expectations derived from financial market pricing.

In an interview with Sky News regarding the latest National Accounts figures released by the Australian Bureau of Statistics (ABS), Federal Treasurer Jim Chalmers responded to criticism that the RBA may need to delay rate reductions based on government spending, stating that he’s “very careful not to put words in the mouth of the Reserve Bank Governor.”

“Consumption is flat, discretionary consumption went backwards again, people are under substantial pressure. And so the investments that we’re making are all about helping people with the cost of living, fighting inflation and making our economy more productive.”

Economists from ANZ recently made a significant shift in their cash monetary policy predictions. Where previously they had been forecasting three rate cuts in 2025, starting from February, they are now predicting just two, with the first to take place in May 2025, followed by a second in August 2025, bringing the cash rate to 3.85%.

ANZ head of Australian economics, Adam Boynton, said that the factors prompting this change included stronger-than-expected employment growth and related labour statistics, business conditions holding around long-run average levels, and rising consumer confidence.

However, he also conceded it was still possible that the RBA board could choose to cut the cash rate in February 2025:

“A lower-than-expected Q4 CPI and some softening in the labour market could prompt the RBA to cut in February, especially given that the November Board minutes appeared to open the door to an early 2025 easing. However, that would require either the data between now and then to print on the downside or the Board to act more pre-emptively than its current language suggests.”

Economists from the Commonwealth Bank are sticking to their forecast of a February 2025 cut to the cash rate, based in part on data revealed in the National Accounts from the ABS. According to Commonwealth Bank analysis, the nation’s GDP rose by just 0.3% in Q3 2024, and annual growth was also well below trend at 0.8%, thanks in part to strong government spending cushioning very weak private sector growth. 

Commonwealth Bank head of Australian economics, Gareth Aird, said that based on these results, the RBA may need to revise its own forecasts for Q4 2024 GDP downwards.

“We continue to believe that the RBA’s forecast for Q4 24 GDP is too strong. And that coupled with our expectation for the unemployment rate to edge higher over coming months and trimmed mean CPI to print at 0.6%/qtr (or lower) in Q4 24 means we stick with our call for the RBA to commence normalising the cash rate in February. The risk clearly sits with a later start date to the rate cutting cycle, particularly if the unemployment rate has not moved higher over the next two months.”

Economists from NAB have also looked closely at the latest GDP figures, describing Australia’s overall economic growth as around its weakest since the early 1990s, outside of the Covid lockdowns. However, they argued that the data would have few immediate implications for the RBA:

“The headline growth figure was marginally below their implied forecast and highlights the risk of a slower pickup in consumption, but still weak productivity growth and strong unit labour costs growth point to the risk of ongoing elevated price/cost pressures.”

Based on this data, NAB is sticking to its forecast that the RBA will keep the national cash rate on hold until May 2025.

Westpac recently adjusted its interest rate forecast, pushing the next rate cut prediction back from February 2025 to May 2025. Additionally, the bank is predicting consecutive rate cuts in late May and early July 2025, rather than a steady pace of one cut per quarter. 

Westpac group chief economist, Luci Ellis, said that an earlier start to an easing cycle in February or March 2025 is still possible, though is no more likely than a May start date.

“A later start date is also a risk scenario, if inflation does not decline as the RBA is currently forecasting, let alone our own marginally more dovish expectation. That said, the longer the RBA Board waits, the faster they will need to move thereafter, as it would then be more likely that they have hesitated too long.”

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.