Cash rate held at 4.35% despite improving inflation figures
Inflation may be continuing to move in the right direction, but the Reserve Bank Board has opted to keep interest rates steady once again.
Following the conclusion of its November monetary policy meeting this afternoon, the Board announced that it had left the official cash rate unchanged at 4.35% - the highest level in 13 years. The cash rate last moved in November 2023, when it jumped from 4.10%.
Last week the Australian Bureau of Statistics (ABS) released its latest Consumer Price Index (CPI) for the September quarter which showed that the annual rate of inflation had declined to 2.8% over the 12 months to October.
Beyond the fact that the price of household goods and services aren't rising as quickly as they have been, the latest inflation figures mean that, for the first time since 2021, the annual headline inflation rate is within the Reserve Bank's target range of 2-3%.
However, the annual rate of trimmed mean inflation - a metric that the central bank often cites - is still sitting a touch above that range at 3.5%.
In its post-meeting statement, the Reserve Bank Board acknowledged the latest inflation data and noted that trimmed mean inflation remains a distance away from the mid-point of its desired range.
"While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high.
"The November SMP [Statement on Monetary Policy] forecasts suggest that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint. This reinforces the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out.
When will the RBA cut rates?
While today's rate decision will be disappointing for households holding out for relief on their home loans, the current thinking among many experts is that - given the direction of inflation - interest rates may begin falling before too long.
In fact, 29 of the 32 experts and economists surveyed by comparison website Finder in the lead up to the meeting said that they were expecting a rate cut from the Reserve Bank by May next year or earlier.
The central bank's first meeting of 2025 in February was by far the most commonly cited month though, with 13 of the 32 survey respondents forecasting a February rate reduction.
One of the respondents anticipating a February cut was James Morley, a macroeconomics professor at the University of Sydney. Morley did note that the RBA is likely to want to see more progress made on the trimmed mean inflation rate before it makes a move though.
"If that progress happens for the third quarter and labour market indicators start surprising on the downside, they [the RBA] could start cutting in December. But I expect the first cut will be in February.
"I also think there will only be about three cuts in 2025 unless conditions deteriorate rapidly. The more likely scenario is a weak, but growing economy for which the RBA will want to test what the neutral level of interest rates is before cutting too far below somewhere in the 3.35-3.84% range."
Australia's four major banks are also expecting a cut in early 2025, with economists from ANZ, Commonwealth Bank, NAB and Westpac all currently pencilling in a 25 basis point reduction to the cash rate from the Reserve Bank in mid-February.
Of course, while plenty of people will be looking ahead eagerly to early 2025 for a shift in interest rates, the Reserve Bank Board hasn't packed up for the year just yet. The Board will come together again on December 9 and 10 for its final monetary policy meeting of 2024.
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