What to expect from the RBA meeting in September 2024

Speaking at the Anika Foundation Fundraising Lunch, RBA governor Michele Bullock reaffirmed the central bank’s stance on inflation, which was at 3.9% as measured by trimmed mean in June 2024. The RBA’s forecast is for inflation to be back in the target range of between 2 and 3% by the end of 2025, and to approach the midpoint in 2026.

“Circumstances may change, of course, and if economic conditions don’t evolve as expected, the Board will respond accordingly. But if the economy evolves broadly as anticipated, the Board does not expect that it will be in a position to cut rates in the near term.”

Governor Bullock acknowledged that restrictive monetary policy settings are causing hardship to some households and businesses, but said that inflation causes hardship too, particularly for more vulnerable Australians, making it necessary to bring inflation down.

Federal Treasurer, Jim Chalmers, has said several times in the past that he does not attempt to pre-empt or influence the RBA’s monetary policy decisions. However, recent statements describing interest rates as “smashing the economy” caused a media stir that required clarification:

“I think it’s self‑evident from the economic data, whether it’s the global economic uncertainty, the persistent price pressures or these higher interest rates, those things are all combining to slow our economy in quite substantial ways… We’ve got different responsibilities, the Governor and I, but we’ve got the same objective, and our objective is to get on top of this inflation challenge in our economy without making life harder for people or smashing an economy which is already weak enough.”

ANZ economists are expecting the RBA to keep rates on hold in September 2024, with the RBA board to likely consider either holding or hiking the cash rate.

“While we continue to expect the RBA to start its easing cycle in February 2025, the risks look to have tilted to a later rather than an earlier start, particularly given the current momentum in the labour market.”

While the USA’s central bank recently cut rates by 50 basis points, this is unlikely to influence the RBA’s decision, according to ANZ.

While the Commonwealth Bank is still expecting the RBA to cut the cash rate by 25 points before the end of this year, it has pushed back its forecast from November to December 2024. This is due to “relatively hawkish rhetoric” from the RBA governor, along with the fact that the December meeting will  be held after the release of the Q3 national accounts, giving the RBA board a better indication of the state of the Australian economy.

“We expect the RBA will commence an easing cycle before it declares we have hit full employment given policy is currently restrictive - waiting until the destination is reached before normalising the cash rate means unemployment will rise by more than is both necessary and desired”

There is also a risk that the start of the RBA’s easing cycle could be pushed back even further to February 2025. Regardless of when the easing cycle starts, Commonwealth Bank is still forecasting 125 points of easing over 2025, bringing the cash rate down to 3.10% by year’s end.

NAB economists are still forecasting that the RBA will keep rates on hold until May 2025, when the easing cycle is expected to begin. However, there is a risk that the RBA could start the easing cycle as soon as February 2025, with all RBA meetings in the first half of 2025 to be considered ‘live’ by NAB.

“We don’t see the RBA as having the full confidence to begin easing by November with a clean read of inflation remaining difficult and the fact it will take some more time for the RBA to become confident that demand and supply have sustainably come back into better balance.”

Once the next easing cycle begins, NAB is forecasting 125 points of cuts, bringing the cash rate to 3.10%.

Westpac’s chief economist, Luci Ellis, has said that the RBA is expected to keep rates on hold in September 2024 and for the rest of the year. This is despite the 50-point cut made by the USA central bank, as Australia has a floating exchange rate, allowing the RBA to set monetary policy according to domestic circumstances.

“Central banks are characterising their rate cutting cycles as normalisation cycles. Policy had needed to be tight to address the high inflation stemming from the pandemic supply shocks and the policy-related demand shock that occurred in response to the pandemic. Now that inflation is close to target in many economies, policy does not need to be as tight as it was. And as we have explained before, because policy works with a lag, central banks need to start normalising before inflation is all the way back to target.”

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.