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While the cash rate remains at 4.35 per cent, major bank economists have noted the hawkish tone from the board following its August meeting.
The Reserve Bank of Australia’s (RBA) most recent hold in the cash rate was widely expected by the majority of bank economists and markets alike.
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However, RBA governor Michele Bullock was quick to dampen any hopes of a reduction in interest rates this year during the post-meeting press conference on Tuesday (6 August) afternoon.
Bullock said that she believed that market expectations of a rate cut in 2024 are “a little bit ahead of themselves” and that a rate cut is not on the board’s agenda in the near term.
Reacting to the board’s statements and decision, Westpac chief economist Luci Ellis said that while the RBA left rates on hold as they expected, their “rhetoric and view of aggregate demand were surprisingly hawkish”.
“Given the Board apparently does not see its way to cutting rates this year, our expectation of a November rate cut is unlikely to be achieved,” Ellis said.
“Our rate forecasts are under review while we assess the basis for the RBA’s own economic outlook.
“The statement and forecasts were more hawkish than we expected, reflecting a surprisingly bullish view on domestic demand. In the media conference after the decision, the Governor went one step further, all but ruling out rate cuts this year.”
ANZ head of Australian economics, Adam Boyton, said at the risk of “reading too much into the RBA’s words”, the board’s statement was “more hawkish than June and May”.
“ANZ Research’s views remain unchanged on account of today’s decision, post-meeting statement and SMP. We expect the first cut will be in February 2025, with the cash rate to end that year at 3.60 per cent, marking the low for the cycle,” Boyton said.
“Given the tone of today’s statement, a rate cut this year would most likely require a much more rapid deterioration across the activity side than we expect.
“While market pricing has moved to aggressively price rate cuts in Australia starting this year, it wasn’t that long ago markets were pricing a rate hike in Australia before the year’s end.”
Commenting on the board’s decision and rhetoric, Commonwealth Bank of Australia (CBA) head of Australian economics, Gareth Aird, said that CBA has maintained that since November 2023, the subsequent move in the cash rate will be down.
“But the overall tone of the Statement as well as some messaging in the August Statement on Monetary Policy (SoMP) was a touch more hawkish than we anticipated. A new line was inserted in the Statement that, ‘policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range,” Aird said.
“And the RBA has forecast a slightly slower return of inflation to target than in the May SoMP. In addition, the RBA assess that there is more excess demand in the economy and labour market than previously thought, both now and throughout the forecast period.
“We are not convinced that is the case given the main drivers of elevated inflation are on the non-discretionary side. Discretionary inflation has fallen swiftly as demand in the economy has slowed.”
According to Aird, CBA has maintained its base case that a rate cut will occur during the November meeting, however, acknowledged that the “wriggle room on the data configuration that would see the cash rate cut in November is still tight”.
[RELATED: Rate cuts are off the table in the near-term]
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