What to expect from the RBA meeting in May 2024

At the last RBA meeting in March 2024, the Board agreed to keep the national cash rate on hold, thanks to the economy tracking broadly as expected, and the risks of uncertainties seeming broadly balanced.

RBA governor, Michele Bullock, said that recent data suggests the RBA is on the right track, but that the interest rate path that may best ensure inflation is brought back to target remains uncertain.

“To the future, we still have to get inflation down and the risks to achieving that remain finely balanced. The war isn’t yet won. So, we continue to be vigilant and we can’t rule anything in or out.”

Some of the factors that the RBA was paying particularly close attention to last meeting included:

• developments in the global economy;
• trends in domestic demand, and;
• the outlook for inflation and the labour market.

Federal Treasurer Jim Chalmers has long declined to pre-empt the RBA’s decisions around interest rates, citing the importance of the central bank’s independence from politics. However with the next federal budget announcement just a few weeks away, the fight against inflation will be an important factor to be balanced with providing relief to ease cost of living pressures for Australian households.

“We also have this growth challenge in our economy, and our investment over time in the key drivers of growth into the future will be about recognising we've got an inflation challenge in the here and now, we've also got a growth challenge unfolding before us and the Budget will be attentive to both.”

ANZ is maintaining its prediction that Australia’s cash rate will remain on hold at 4.35% until November 2024, where a 25-point cut to 4.10% is forecast.

However, ANZ senior economist, Catherine Birch, said that the latest CPI data is “consistent with the risks around that being skewed towards a later start.”

“While these quarterly figures are lower than last year, signalling disinflation in domestic prices pressures, they still appear too high to be consistent with target inflation. We think the RBA will want to see a couple of quarters of lower non-tradables and services inflation to be convinced that overall inflation will not only return to the 2–3% target band but remain there.”

ANZ is still forecasting three 25-point rate cuts over later 2024 and the first half of 2024, though there is a concern that more rate cuts could become necessary if consumer confidence fails to lift, potentially risking household consumption and GDP growth.

This is despite recent data revealing that unemployment rose from 3.7% to 3.8% in March, which is still short of the RBA’s forecast for unemployment to reach 4.2% by the end of the June quarter this year.

The recent CPI data came in higher than Commonwealth Bank’s expectations, which were for a 0.7% quarterly rise in a headline CPI, and 3.4% year on year.

Commonwealth Bank economist, Stephen Wu, said that this data could potentially indicate a later start for the RBA’s next easing cycle.

“Post the stronger-than-expected CPI print, higher than both our and the RBA’s implied profile, as well as the gradual loosening in the labour market thus far, suggests the risk now sits with a later start date to the first rate cut.”

Mr Wu also pointed out that by the November 2024 meeting when the first rate cuts are predicted to occur, the RBA will have additional quarterly CPI data (released in late October) available to base their decision around.

Additionally, the Commonwealth Bank updated its own interest rate forecasts following the inflation news. Commonwealth Bank head of Australian economics, Gareth Aird, said that the bank was now predicting the RBA’s easing cycle to begin in November 2024 rather than September 2024, with just one 25-point rate cut compared to the previous 75 points. Four rate cuts are then expected to follow over 2025, one per quarter, bringing the cash rate down to 3.10% by that year’s end. 

“Our expectation for below-trend economic growth to continue over 2024 means that the labour market will further loosen and wages pressures will moderate. This will help to drag inflation back to the RBA’s target band.  Notwithstanding, the disinflation process is likely to take a little longer than we previously anticipated due to very strong population growth continuing to put upward pressure on some non-discretionary components of the CPI basket.”

NAB is maintaining its prediction that the RBA will keep the cash rate on hold in May 2024, though the underlying strength of the labour market and the pace of easing in inflation remain concerns.

“Overall, we see the RBA as moderately restrictive but for now still able to return inflation to target without a more significant pull-back in economic activity. That said, risks likely remain to the upside on the trajectory of our inflation forecasts. For now, we think the RBA can remain patient, taking the win from goods disinflation but the breadth of strength in services inflation remains a concern.”

NAB’s forecast is for the cash rate to remain on hold until November 2024, before cutting back towards 3.1% over 2025.

Following the quarterly March 2024 CPI update from the ABS, Westpac updated its cash rate forecast. While a hold is still anticipated in May 2024, the bank has pushed back its predicted next interest rate cut from September 20204 to November 2204.

Westpac chief economist, Luci Ellis, said that the RBA “will probably continue to be cautious about services inflation and domestic pressures broadly for a few months yet. We therefore do not expect any change to the messaging about not ruling anything in or out for another few months.”

Previously, Westpac had forecast that the March 2024 CPI update would come in at 3.5%, which would have been more in line with the RBA’s inflation forecasts.

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.