As expected, the Reserve Bank of Australia (RBA) kept its cash rates unchanged at 4.35% in November.
RBA recognized that headline inflation has fallen sharply from lower fuel and energy prices, but cautioned that it may rise again as cost-of-living relief unwinds.
Underlying inflation, which RBA thinks is more indicative of inflation momentum, also “remains too high.” The central bank expects that it will be “some time yet” (read: 2026) before underlying inflation stays within the midpoint of RBA’s 2% – 3% target.
Growth remained subdued in the June quarter and household consumption growth was weaker than expected. On the other hand, public demand helped boost economic activity and labor demand.
Speaking of labor, RBA thinks employment conditions have eased but remain tight relative to full employment. Wages growth is moderating, but labor cost growth is still elevated alongside weak productivity growth.
For now, RBA members are still focused on “returning inflation to target within a reasonable timeframe,” which involves remaining “vigilant to upside risks to inflation“ and not ruling anything in or out in terms of policy options.
Link to RBA’s November Decision
In its latest quarterly economic projections, the RBA expects inflation to stay above the 2%-3% target band until late 2025, with CPI forecast to reach 2.5% by the end of 2026. This marks a slower path to target compared to the August forecasts.
The central bank also expects slightly slower growth, with GDP projected to reach 1.5% in the year ending December 2024 (down from 1.7% in August) before accelerating to 2.2% by end-2026. RBA noted that 2025 forecasts were revised “a little higher” after taking into account China’s recent stimulus package announcements.
Year-average GDP growth is still expected to be 1.2% in 2024 before improving to 2.2% (down from 2.5%) in 2025.
Labor market conditions are anticipated to soften further, with the unemployment rate now forecast to rise to 4.3% by end-2024 and gradually increase to 4.5% through 2025 and 2026 – a more substantial weakening compared to August’s projections.
Last but not least, RBA’s assumptions show the cash rate to continue declining, reaching 3.5% by 2026.
Link to RBA’s November Statement on Monetary Policy
In her presser, RBA Governor Michele Bullock highlighted the central bank’s focus on upside inflation risks, which is why she also believes that “rates must remain restrictive for the time being.“
Bullock shared that no explicit interest rate change scenarios were discussed, though she and her team are prepared to take action if the economy slows more than expected.
Link to RBA Gov. Bullock’s presser
Australian dollar vs. Major Currencies: 5-min
Overlay of AUD vs. Major Currencies Chart by TradingView
The Australian dollar, which found early support from Asian session traders unwinding their “Trump trade” bets, traded in tight ranges ahead of RBA’s event.
The Aussie initially saw small downswings at the RBA’s statement release, but Bullock’s focus on vigilance against high inflation encouraged hawkish expectations and fueled intraday upswings for the Aussie.
AUD is in the green across the board, trading the strongest against JPY, CHF, and USD while seeing the least gains against NZD and GBP.
