What to expect from the RBA meeting in February 2025

All four of Australia’s big banks are now forecasting that the Reserve Bank of Australia (RBA) Board will cut the cash rate at its first meeting of 2025, thanks in part to better-than-expected inflation figures.

The Australian Bureau of Statistics (ABS) recently released its quarterly Consumer Price Index (CPI) report, which found that over the twelve months to the December 2024 quarter, CPI inflation was 2.4 %, down from 2.8% in the September 2024 quarter. At the same time, trimmed mean annual inflation was 3.2%, down from 3.6% in the September quarter.

RBA

The RBA has previously made it clear that one of its goals is for inflation (particularly trimmed mean or underlying inflation) to remain sustainably within a target band of between 2% and 3%. Its adjustments to the cash rate in the past can be partly attributed to this goal, such as cutting the cash rate to a record low during then COVID-19 pandemic, and raising rates 13 times in response to inflation hitting a peak of more than 7%.

Following the previous RBA meeting in December 2024, RBA governor Michele Bullock said that because monetary policy operates with a lag, the Board has to think carefully about the decisions it makes. 

“The Board needs to be confident that inflation is moving sustainably towards the target, and for this to occur we need to see more progress on underlying inflation coming down.”

The governor also acknowledged that the language in the RBA last Statement on Monetary Policy had softened, to deliberately show that the Board’s opinions and views are evolving alongside the data. The governor also reaffirmed that the Board would be looking at the data, assessing what that means for inflation, and whether or not they’ll make their forecasts before making any decisions. 

Federal Government

Federal Treasurer, Jim Chalmers, welcomed the inflation news, describing the facts that headline inflation is at almost a four-year low, and underlying inflation is at its lowest in three years, as “very welcome developments.”

However, the treasurer left the future of interest rates in the hands of the independent RBA, stating at a press conference that “We take no outcome for granted when it comes to interest rates.”

“They will weigh up these numbers and other numbers that we’ve seen in the economy since they last met. They will come to a decision and communicate that decision in February, and I’m not going to get in the way of that. I’m not going to predict it or pre-empt it or give them free advice.”

ANZ

Following the release of the ABS CPI figures, ANZ senior economist, Catherine Birch, said that with trimmed mean inflation falling to 3.2%, below the RBA’s forecast of 3.4%, this should be enough for the RBA to cut the cash rate by 25 points at its February 2025 meeting.

“The six-month annualised rate of trimmed mean inflation decreased to 2.7%, close to the middle of the RBA’s target band. Quarterly services inflation of 0.7% q/q was the lowest since Q2 2022. And non-administered inflation steadied at 2.5%y/y.”

Beyond February, ANZ is forecasting just one more rate cut in 2025, to take place in August. This shallow easing cycle would be due to the relatively low unemployment rate, the improvement in household incomes and sentiment, and support from public sector spending.

Commonwealth Bank

Commonwealth Bank head of Australian economics, Gareth Aird, said that the recent ABS inflation report indicated that the disinflation process has gathered momentum, in line with CBA’s expectation.

“The message from today’s data is that the glide path of returning underlying inflation to the target band has gathered steam… Headline inflation has been within the RBA’s target band for the past two quarters.  And the RBA’s preferred measure of underlying inflation is now not far from the mid-point of the target band on a six-month annualised basis.”

Looking ahead, CBA is predicting 100 points of easing over 2025, with one 25-point cut per quarter, which would bring the cash rate down to 3.35%.

NAB

According to NAB chief economist, Alan Oster, weaker than forecast Q4 CPI contributed to its shift of forecast from May 2025 to February 2025. Other factors in play included the pivot in the RBA communication in December 2024, a softer outlook for the housing components of inflation, and further encouraging progress on market services.

“Importantly, despite pulling the call forward we still expect a gradual easing phase. While the board is likely to have gained confidence that inflation will sustainably return to target as soon as late 2025, the labour market remains resilient (and there is some risk of retightening) with growth still expected to pick-up this year.”

While NAB has moved its forecast rate cut forward, it still expects the cutting phase to be gradual, with the RBA taking the cash rate down to 3.1% by February 2026.

Westpac

According to Westpac chief economist, Luci Ellis, “it’s on for February.” While normally one number would not be enough to affect a rate call, the message from other available data has been mixed, making better-than-expected inflation data the deciding factor, alongside housing data.

“We see encouraging signs in housing-related inflation suggesting that the momentum in domestic price pressures is fading a bit faster than the RBA feared. Both rents and home-building costs have decelerated noticeably in recent months, and not just because of government cost-of-living support.”

Looking beyond the next meeting, Westpac sees the RBA as remaining data-dependent and in no hurry to move further. Assuming inflation continues to decline and the labour market softens, cuts in May, August and November 2025 could bring the terminal rate down to 3.35%.

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.

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