Australia’s RBA Shadow Board: A Balanced Stance on Monetary Policy in December 2023

⚡️ Highlights:

1. Consumer price index (CPI) rose 4.9% in the twelve months to October 2023, down from 5.6% in the previous month. Housing, food and non-alcoholic beverages, and transport experienced the most significant price rises.

2. The RBA’s Trimmed Mean CPI, which excludes volatile items, was 5.3% year-on-year, slightly lower than the previous month and above the RBA’s target band of 2-3%.

3. The labour market is showing signs of weakening, with a slight increase in the unemployment rate and a decrease in job advertisements. The youth unemployment rate also spiked.

4. The Australian dollar increased slightly against the US dollar, while yields on Australian government bonds retreated. The share market saw modest gains.

5. Consumer confidence decreased in November, private sector growth slowed, and business indicators contracted. The housing market remained strong despite interest rate increases, posing a challenge to the RBA. The global economy is expected to slow throughout 2024.

Insights into the Economic Indicators and Monetary Policy Recommendations

The RBA Shadow Board’s December 2023 meeting provided a finely balanced view on Australia’s monetary policy, amidst varying economic indicators. The monthly consumer price index (CPI) rose 4.9% year-on-year in October 2023, a decrease from the previous month’s 5.6%. The RBA’s Trimmed Mean CPI, excluding the most volatile items, was at 5.3%, still above the RBA’s target band of 2-3%. The labor market showed initial signs of weakening, and business confidence continued to soften, while the global economic outlook remained muted.

Key Economic Observations

  • Consumer Price Index Trends: The CPI’s year-on-year increase indicates ongoing inflationary pressures, though there’s a slight easing compared to previous months.
  • Labor Market Dynamics: The labor market remains robust but is showing early signs of strain, with the unemployment rate ticking up to 3.7% in October.
  • Business Sector Softening: Business indicators, including manufacturing and services PMIs, have contracted, pointing to a softening in the business sector.
  • Housing Market Strength: Despite interest rate increases, the housing market continues to show strength, with the CoreLogic Home Value Index rising 0.6% in November.
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Shadow Board’s Monetary Policy Recommendation

The Shadow Board’s recommendation is evenly balanced, assigning a 50% probability that the overnight rate should remain steady at 4.35% and a 49% probability of an increase to 4.60% or higher. This reflects the board’s cautious approach in light of the mixed economic signals.

Longer-Term Monetary Policy Outlook

Looking ahead, the Shadow Board’s confidence levels for the appropriate cash rate vary over different time horizons:

  • Six Months Out: Confidence that the cash rate should remain at 4.35% is 21%, with a 56% probability attached to a required increase.
  • One Year Out: Confidence in maintaining the current rate is 20%, with a 47% probability for a decrease and 33% for an increase.
  • Three Years Out: The board attaches an 11% probability that the overnight rate should remain at 4.35%, with a 77% probability favoring a lower rate.


The RBA Shadow Board’s balanced stance on monetary policy reflects the complexities of the current economic environment. With mixed signals from various economic indicators, the board’s cautious approach underscores the need for vigilance and adaptability in monetary policy decisions.

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