The Reserve Bank of Australia has maintained interest rates at 4.35 per cent, but has hinted at a potential rate cut in February due to weak economic growth and low inflation.
By Stephanie Chalmers, Business Reporter
The Reserve Bank has left interest rates unchanged in December for a ninth-straight meeting, but has opened the door to a potential rate cut as soon as February.
RBA’s Decision
The Reserve Bank kept its cash rate target at 4.35 per cent after a two-day meeting, a level it has been at since November 2023. This decision comes despite Australia’s economy recording its weakest annual growth rate in decades — outside of the pandemic — in the September quarter and inflation at a more-than-three-year low.
RBA’s Statement
In its post-meeting statement, the RBA board said that 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 statement read:
“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.”
RBA’s Future Plans
The RBA board noted that despite inflation falling from its peak in 2022, they wanted to see further easing. However, the bank’s governor, Ms Bullock, declined to give any future indication about when the bank may lower the cash rate.
“I honestly don’t know if we’re going to be cutting in February,” she said. “We’re going to be looking at the data and be data-driven.”
Market Reaction
The Australian dollar fell in reaction to the news, indicating traders now saw a greater chance of earlier interest rate cuts. Capital Economics described the statement as “rather dovish”, but maintained its call that the first rate cut would not come until May.
“While the board had argued in November that it would need to see more than one good quarterly inflation print to be confident that price pressures are easing, the board has since learned that consumption growth isn’t recovering as quickly as it had expected,” Capital Economic’s head of Asia-Pacific Marcel Thieliant said.
“All this opens the door to a rate cut at the bank’s February meeting, though it’s worth noting that the unemployment rate is on track to undershoot the bank’s November forecast.”
“With the unemployment rate still below the RBA’s estimate of full employment, we suspect that the Bank will want to see a further loosening of the labour market before cutting interest rates.”
Reserve Bank Decision on Interest Rates
Key Points
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The Reserve Bank has decided to keep interest rates unchanged.
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However, the bank has left the door open to a potential rate cut in February.
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The decision was based on recent data showing that inflation is moving towards target.
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The bank’s statement noted weak growth in the September quarter and the ongoing effect of restrictive financial conditions.
Quotes from Reserve Bank Officials
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“We’re not saying what we might do, but we are acknowledging that there is some softening and our forecast is to see inflation coming back down gradually over the next year.” – Ms Bullock
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Capital Economics described the statement as “rather dovish”, but maintained its call that the first rate cut would not come until May.
Related Topics
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Reserve Bank
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Interest Rates
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Inflation
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Monetary Policy
