What to expect from the RBA meeting in February 2024

In the leadup to the first meeting of the year for the Reserve Bank of Australia (RBA) board, economists from Australia's leading banks are in agreement that interest rates should stay on hold this month. That leaves two questions: how long will it take for inflation to fall into the RBA’s target band, and when will the first interest rate cut arrive?

The February 2024 meeting is the first of a new schedule for the RBA, where the Board will meet on Monday 5 February and announce its decision on Tuesday 6 February. Following the announcement, the RBA will release its latest Statement on Monetary Policy, and RBA Governor, Michele Bullock, will hold a press conference. 

RBA

According to the minutes of its last meeting back in December 2023, the RBA Board considered raising the cash rate by 25 basis points to 4.60% due to risks that inflation could remain above target for an extended period, driven in part by domestic demand. However, the board also observed that many households are experiencing a painful squeeze on their finances, with inflation and higher interest rates weighing on real disposable incomes, supporting the case for keeping rates on hold.

While the Board ultimately decided to keep the cash rate on hold, its members agreed that “whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the  data and the evolving assessment of risks.”

“The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”

Treasury

Federal Treasurer, Jim Chalmers, recently welcomed lower-than-expected quarterly and monthly inflation figures from the Australian Bureau of Statistics (ABS), though he declined to make predictions or pre-empt the RBA’s upcoming interest rate decisions.

“Despite today's welcome moderation, we know that households are still struggling, so cost of living and the fight against inflation remains the Albanese Government’s highest priority.”

While recently announced changes to tax cuts had been flagged as a potential source of higher inflation, the Treasurer said that “we are delivering our tax plan in a way that doesn’t add to inflationary pressures.”

ANZ

ANZ head of Australian economics, Adam Boyton, said that the Q4 CPI figures have “cemented” no change in rates at the February 2024 RBA meeting. But while risks are starting to tilt toward an earlier start to a future easing cycle, ANZ is not yet ready to move its forecast of the first rate cuts arriving in November 2024 just yet.

“While conditions in the economy are clearly turning – the soft pace of Q3 GDP growth, the weakness in the labour market over Q4 and declines in business conditions being cases in point – we expect the RBA will be slow to change its tightening bias or its broad readings on the economy.”

ANZ also noted that despite the encouraging CPI numbers, the RBA will likely repeat in its announcement that inflation remains above the target and that services inflation could be sticky or slow to decline.

Commonwealth Bank

Commonwealth Bank head of Australian economics, Gareth Aird, has said that the bank expects the RBA to leave the cash rate unchanged in February 2024, with “no chance of any other outcome.”

“The case to leave monetary policy on hold next week is stronger than at any point in the last two years.”

Looking forward, the Commonwealth Bank expects the RBA will maintain its current tightening bias, as it would not want to signal too early that the inflation fight is over, which could lead to an early loosening of fiscal settings. But if the RBA was to shift to a more neutral bias, then it could signal that the RBA is closer to cutting the cash rate than the Commonwealth Bank’s current prediction of September 2024.

NAB

NAB was the last of Australia’s big four banks to update its cash rate forecast, having been predicting a hike up until January 2024, when it switched over to a hold:

“Based on the outlook for weak activity growth, an ongoing easing in labour market pressures and continued easing in inflation, NAB believes the cash rate has peaked for this cycle at 4.35%, with the RBA expected to remain on hold until November.”

NAB chief economist, Alan Oster, added that by November 2024 the RBA would begin cutting the cash rate at a “modest rate”, with 25-point cuts each quarter until an “effectively neutral” cash rate is achieved by late 2025.

Westpac

Westpac chief economist, Luci Ellis, has said that the recent CPI data from the ABS “seals the deal” that the RBA will keep the cash rate on hold in February 2024, and that it is unlikely to raise rates further in the current cycle. That said, it was also noted that there is still some risk that inflation may not come down as quickly as the RBA wants, and that inflation expectations could also lift:

“Given these concerns, the RBA Board therefore is unlikely to rule out further rate increases entirely in their post-meeting communication. But the case to raise the rate from here is steadily losing traction.”

Westpac’s expectation is that as inflation declines over the coming months, the RBA Board’s confidence that inflation will return to target on the desired timetable will grow. This will give the RBA Board scope to reduce some of the current policy restrictiveness, which could see the first rate cut arrive no earlier than September 2024.

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

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