What to expect from the RBA in September 2023

The RBA kept the cash rate on hold in August 2023, noting that data was signalling the economy was “still on the narrow path in which inflation returns to target while employment and the economy continue to grow.” 

However, the risk remains that inflation may take longer than is acceptable to return to target. If this were to occur, more rate rises may be required, “making it very difficult to preserve the gains made in employment over prior years.”

“In making its decisions over the months ahead, the Board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market.” 

In a recent speech at Australian National University, incoming RBA governor, Michele Bullock, said that the RBA would also be paying close attention to the effects of climate change on monetary policy in the future:

“Climate change might have important effects on an economy’s capacity to produce goods and services – that is, on potential output. It might also affect the neutral interest rate and, therefore, the stance of monetary policy. These concepts are difficult enough to assess in real time in the normal course, let alone when climate change is introducing additional variability and uncertainty.”

Speaking at a recent press conference, Federal Treasurer Jim Chalmers declined to “predict or pre-empt” the RBA’s decisions, but noted that Australia’s economy is slowing as a consequence of previous rate rises plus international uncertainty. 

The Treasurer added that the recent monthly Consumer Price Index (CPI) data from the Australian Bureau of Statistics (ABS) “shows that we are making progress and our economic plan is working but there's more to do because Australians are still under pressure.”

ANZ Research is predicting an “extended pause” from the RBA, which would leave the cash rate at 4.1% well into 2024. Late in that year, the RBA could choose to cut the cash rate by 0.25% to 3.85%, depending on if inflation reaches the RBA’s target band, among other factors.

ANZ senior economist, Adelaide Timbrell, said that the effect of an extended pause from the RBA, combined with a resilient labour market, is yet to be seen in consumer confidence, which has been held back by falling real wages due to inflation for the past six months.

Commonwealth Bank is also forecasting an extended pause from the RBA. The cash rate is expected to stay at 4.1% until Q1 2024, when the RBA could start to cut the cash rate at its 18-19 March meeting (under the new RBA timetable of 8 meetings per year).

Commonwealth Bank senior economist, Belinda Allen, said that CBA does not view the September RBA meeting as a “line ball call” like previous meetings:

“The data flow over the past month and the large amount of rate hikes delivered to date make it a clearer decision in September. However we expect the RBA will still run through the case to hike and maintain a tightening bias.”

CBA has also observed that the monthly inflation figures in August are progressing towards the RBA’s inflation target, with inflation expected to hit 4.0% by the year’s end. However, spending, prices and wages could all affect the RBA’s decisions, potentially pushing back the date of future rate cuts.

NAB is also forecasting that the RBA will keep the national cash rate on hold at 4.1% in September 2023. However, NAB is not predicting that this will be an extended pause, with one more rate rise forecast for November 2023, taking the cash rate to a peak of 4.35% (lower than the previously forecast peak of 4.6%).

 “The Board appear willing to wait to be pushed to raise rates further. The longer they wait, the more we expect the economy to slow, limiting the need for further increases. However, we expect the strength of inflation through Q3 will push the Board to take out additional insurance against inflation remaining above target.”

Following this hike, NAB expects the RBA will leave the cash rate on hold until August 2024, when it will start cutting the cash rate, until it returns to around 3% by early 2025.

Westpac chief economist, Bill Evans, has said that while the August rate pause “took us by surprise”, Westpac now believes that the cash rate will remain on hold at a peak of 4.1%.

“We now expect that the next move will be down, although not until the September quarter of next year.”

That said, it’s possible that this easing of monetary policy could be constrained by the RBA’s concerns that issues around productivity and labour costs could lead inflation to take longer to get back below 3%, or even get stuck above the RBA’s target.

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.