RBA interest rates: September board minutes show a ‘step-down’ in tone but focus still on taming inflation

October 8

The Reserve Bank has dropped its guidance that a near-term cut to interest rates is unlikely — but has made it clear the next move could be in either direction.

The RBA held rates at 4.35 per cent at the September meeting, where they have remained since November 2023.

Minutes from that meeting show the bank is keeping all options on the table.

Another rate hike could be on the cards if household spending bounces faster than expected, or inflation fails to move back to target, the minutes show.

But there’s a change in tone from the previous statement from just six weeks earlier.

While the RBA board had in August said “it was unlikely that the cash rate target would be reduced in the short term”, the September notes omit that line.

It backs up governor Michele Bullock’s revelations that the board had not specifically considered a hike at the latest meeting.

ANZ declared “the minutes contain a clear step down in the RBA board’s hawkishness”.

“This leaves the door open to a shift to neutral by the end of this year and then easing in early 2025. We continue to expect the first cash rate cut in February 2025”.

Commonwealth Bank head of Australian economics Gareth Aird agreed there had been a significant change.

“The board has now back-pedalled from its forward guidance,” Mr Aird said in a Tuesday note.

He said the RBA had signalled rates would be cut if the economy was weaker, or if inflation was less persistent, than expected.

The bank reckons inflation and economic growth will run below the RBA’s projections, which it said would back in the case for a December cut.

But the RBA remains open to piling on more interest rate pressure should that be necessary to stop inflation.

It will largely ignore moves by overseas central banks to cut rates, because Australia’s job market is stronger and inflation has yet to fall as much, the minutes said.

A lift in spending driven by a recovery of household disposable income could add to inflation pressure. So too would slow productivity growth.

The central bank also acknowledged there were risks its forecasts about supply capacity could be off the mark, forcing the cash rate “to be noticeably higher than the market path”.

The most crucial factor is still inflation.

The RBA has been fighting since 2022 to bring rising prices back under control and will be reluctant to let the reins loose until there’s a “sustainable” return to the target zone of 2 to 3 per cent.

There was some evidence underlying inflation — a measure of prices which strips out volatility — was easing, yet the RBA expected the number to remain above target.

Underlying inflation fell about one percentage point over three months to be 3.4 per cent in August. The bank said the quarterly fall had not been as significant, however.

“Recent data on inflation had been consistent with a further gradual easing in underlying inflationary pressures,” the minutes said.

“Looking ahead, monthly CPI data for August (released the day after the meeting) was expected to show a sharp decline in headline inflation, partly because of Federal and State government cost-of-living relief.

“But underlying inflation was expected to remain above target.”

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