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The market expects the central bank to hold the cash rate today, despite inflation being within the RBA’s target band.
Bank economists and the wider investor market are expecting the Reserve Bank of Australia (RBA) to hold the official cash rate at its current level of 4.35 per cent today (5 November), despite inflation having eased to within the central bank’s target band of 2–3 per cent.
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Economists at all four major banks (ANZ, CBA, NAB, and Westpac) and 95 per cent of the broader futures market (as per the ASX 30 Day Interbank Cash Rate Futures) expect the cash rate to remain on hold following the conclusion of the RBA’s two-day board meeting for the monetary policy decision for November.
While the Consumer Price Index (CPI) returned to the Reserve Bank of Australia’s (RBA) target range for the first time in more than three years in the September 2024 quarter – at 2.8 per cent – this was largely driven by energy rebates and fuel prices falling.
When removing the items with the largest price changes, the trimmed mean for annual inflation was still out of target range.
According to the latest data release from the Australian Bureau of Statistics, the trimmed mean for annual inflation was 3.5 per cent during the September 2024 quarter.
What do the major banks think?
Noting the figures, ANZ’s economics team said: “With the Q3 CPI showing trimmed mean inflation in line with what we infer to have been the RBA’s forecast, we expect another shift toward a neutral stance at the RBA Board’s November meeting.
“The decline in trimmed mean inflation (six-month annualised trimmed mean inflation decreased 0.5ppt to 3.3 per cent) will not be enough in our view to convince the RBA it should begin the easing cycle this year, particularly as there does not appear to be an urgent need to support the labour market.”
As such, ANZ is expecting the RBA to hold the cash rate at 4.35 per cent until a 25-bp cut in February 2025.
Similarly, CBA’s Gareth Aird said the Cup Day call to leave the cash rate on hold should be “a straightforward decision”, suggesting the chance of any other outcome was “trivial”.
While he said he expects the RBA to acknowledge the fall in both headline and core inflation today, he added: “The RBA’s preferred underlying inflation measure, the trimmed mean CPI, rose by 0.8/qtr (0.78 per cent/qtr on a two decimal place basis).
“CBA had forecast a lower outcome for trimmed mean inflation, which had underpinned our view that the RBA could commence normalising the cash rate in December. We jettisoned that call after the data dropped as the trimmed mean outcome was simply not low enough to see the RBA cut rates this calendar year. Our base case is now for a first cut in the cash rate in February 2025.”
Westpac’s chief economist Luci Ellis said in the Westpac Weekly update: “The all-important trimmed mean measure came in on consensus at 0.8 per cent qoq, and 3.5 per cent yr. Both measures are significantly down from the prior quarterly readings.
“Given the uncertainties surrounding the US election [set for today, 5 November] and its aftermath, we think it likely that the RBA will stand pat this time and see how global events play out,” she said in an economic update on Friday (1 November).
“We continue to expect rates to remain unchanged this year, and that the rate-cutting phase will begin with a 25 basis point cut at the February 2025 meeting.”
NAB senior economist Gerard Burg also reiterated last week that the major bank thought the first cut would come in February next year.
However, he said: “As much as anything, it’s not so important when the first cut is, or how much, [but] it’s really the end point of where we get to.
“In the latter part of 2026, we expect the rate to be sitting around about 3 per cent, which is where we see the neutral rate for the economy at present.”
The RBA governor Michele Bullock will announce the cash rate decision at 2.30pm AEDT today.
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