What to expect from the RBA in October 2023

September 2023 was Dr Philip Lowe’s last meeting as RBA governor, before handing the reins (and the novelty coffee mug) over to Governor Michele Bullock.

At this meeting, the board discussed hiking the cash rate by 25 points to 4.35% in response to inflation, which was expected to “remain above the Bank’s target for a prolonged period”. A recent rise in petrol prices was highlighted as evidence that the return of inflation to the RBA’s target band of 2%-3% could be “uneven.”

While the RBA decided to keep rates on hold at 4.1% in the end, noting that “the economy still appears to be on the narrow path by which inflation comes back to target and employment continues to grow”, the board also noted that “some further tightening in policy may be required should inflation prove more persistent than expected.”

Speaking at a doorstop interview in Longreach, Queensland, Australia’s Federal treasurer, Jim Chalmers, said that despite the recent uptick, inflation has been moderating over the long term:

“Quarterly inflation peaked before the last election, the first quarter of 2022. It peaked in annual terms around Christmas. We'll see these monthly outcomes bounce around from time to time but the overall moderation is pretty clear.”

The Treasurer also reiterated his stance that he’d like to see inflation moderate more quickly to protect vulnerable Australian families, small businesses and pensioners, and that the Treasury’s “number one priority is trying to take some of the edge off these inflation pressures without adding to them.”

ANZ Research is still predicting an “extended pause” from the RBA, where it will leave the cash rate at 4.1% well into 2024, when it will commence a “modest easing cycle”. If inflation meets the RBA’s target band, the RBA could choose to cut the cash rate by 0.25% to 3.85% in late 2024.

That said, it was also noted that inflation expectations are likely to be of interest to the RBA, especially given recent strength in petrol prices.

ANZ senior economist, Adelaide Timbrell, said that while monthly inflation recorded an uptick in August 2023, the rate of 5.2% was still the second-lowest result since early 2022, and added that while the result adds a touch of upside risk, it’s “not enough risk to warrant the RBA hiking rates in October.”

Economists from the Commonwealth Bank have described the recent inflation uptick as a “temporary hump” in inflation’s downward trend since December 2022. 

“We think the RBA will be inclined to see it that way too when it meets next Tuesday for the October rate decision.  We don’t anticipate the August CPI will alter their view the current cash rate of 4.1% is restrictive enough to pull inflation back inside the target band.”

“The tightening of fiscal policy that has been occurring through 2022/23 and pushing into 2023/24 will assist the RBA in getting inflation back into the 2%-3% target range, which we expect to see in H2 2024”

NAB isn’t forecasting a rate hike in October 2023, but it’s still pencilling in one more rate hike before the end of the year. This is most likely to occur in November 2023, after the RBA has had time to review the quarterly CPI figures from the ABS, among other economic indicators.

“The RBA now clearly sees rates working to slow the economy alongside the impact of inflation weighing on households’ real income growth – seeing a period of below trend growth over this year and next. We continue to see the RBA shifting back towards neutral from mid-2024 with inflation clearly returning to target and unemployment up near 5% on our forecasts.”

Westpac’s view is that the RBA will keep the cash rate on hold until August 2024, which is when the next rate cutting cycle is expected to begin. These views come in part from analysis of the minutes for recent RBA board meetings:

“In recent months, the Board has stopped describing its considerations for policy – the choice between remaining on hold and a rate hike – as “finely balanced”. Rather, it has become increasingly clear that the Board view the case for remaining on hold as the “stronger” argument, in step with their growing confidence in navigating a soft landing.“

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.