️ Highlights:
1. The RBA is expected to keep the cash rate unchanged and maintain a mild tightening bias, but there is a possibility that the hiking bias will be removed.
2. The RBA will release their updated economic forecasts in the February Statement on Monetary Policy (SMP), including a lower end-2024 inflation forecast and a forecast for inflation to return to the mid-point of the target band by mid-2026.
3. The RBA’s end-2024 unemployment rate forecast is likely to be slightly increased, and the GDP growth forecast for 2024 is expected to be downgraded.
4. RBA Governor Bullock will hold a press conference after the decision is announced, and will also appear before the House of Representatives Standing Committee on Economics on Friday.
5. The RBA is expected to start an easing cycle in September, with projected rate cuts in late 2024 and the first half of 2025, bringing the cash rate to 2.85%.
A Comprehensive Analysis by Gareth Aird, CBA’s Head of Australian Economics
Gareth Aird, leading the Australian economics team at Commonwealth Bank of Australia (CBA), provides a decisive outlook on the Reserve Bank of Australia’s (RBA) monetary policy direction for the upcoming period. With a keen analysis of the current economic indicators and inflation trends, Aird forecasts that the RBA will maintain the cash rate at its current level in the next meeting, dismissing any possibility of an interest rate hike.
Key Insights from the Analysis
- Stable Cash Rate: Aird predicts the RBA will keep the cash rate unchanged, citing a stronger case for maintaining the current monetary policy stance than at any point in the last two years.
- Tightening Bias to Remain: Despite expectations for the cash rate to hold, the RBA is likely to retain a mild tightening bias, albeit with a possibility of its removal, reflecting a cautious approach towards future economic developments.
- Economic Forecasts: The RBA’s upcoming Statement on Monetary Policy is anticipated to lower end-2024 inflation forecasts slightly above 3%, with inflation expected to align with the target midpoint by mid-2026. Adjustments to unemployment rate forecasts and GDP growth for 2024 are also expected.
- Governor’s Press Conference: RBA Governor Bullock’s press conference, now a regular post-meeting feature, will provide further insights into the Board’s decision-making process and economic outlook.
Analyzing the Economic Landscape
Aird’s analysis highlights the significant progress made in controlling inflation, with recent CPI data indicating a faster pace of disinflation than anticipated by the RBA. This positive trend, coupled with signs of slowing economic growth and a softening labor market, strengthens the argument against further tightening of monetary policy.
The Path Ahead
While the RBA’s tightening bias is expected to persist for now, Aird firmly believes that the next move will be a reduction in the cash rate, potentially commencing an easing cycle in late 2024. This perspective underscores a strategic wait-and-see approach by the RBA, balancing between inflation control and fostering economic growth.
Conclusion
Gareth Aird’s analysis presents a clear picture of the RBA’s likely course of action in the face of evolving economic conditions. With no chance of an interest rate hike in the near term, the focus shifts to the RBA’s forthcoming economic forecasts and the implications for Australia’s monetary policy landscape.