RBA interest rates recap: Reserve Bank of Australia’s November board meeting call revealed
Saddle up for three big events today that are all champing at the bit to change the course of history.
OK, that may be a bit of an overstatement … but how often do the stars align to deliver in one action-packed 24 hours a Reserve Bank rates call, a Melbourne Cup and a presidential election?
And before the nit-pickers pipe up with their clipboards and tell us that “technically, the US election is tomorrow in Australia when you account for the time difference”, save it.
Right now it’s November 5. Just how you justify having a drink in the departure lounge at 7am because “somewhere in the world it’s beer o’clock”, the US goes to the polls on November 5. That’s today. Deal with it.
And if you want to kick off this triple threat with a dead cert, start with the RBA continuing its long run of holding the official interest rate at 4.35 per cent ... just as it has for every meeting since November last year.
The chance of the board declaring an end to the war on inflation and easing the credit purse strings is about as likely as Donald Trump getting to the end of a rally without his pants on fire.
But what every squeezed household with a mortgage will be hoping for is a softening in language about the timing of the first cut, which most experts agree will come in February. Some less optimistic commentators are now saying May.
Price growth has steadily declined in recent months, with data last week showing headline inflation back within the RBA’s 2 to 3 per cent target range, aided by government energy bill rebates. Strip out such volatility and it’s still running at an annual 3.5 per cent.
That, along with continuing strength in the labour market, is all the cover the board needs to push back against growing cries for relief and keep rates on hold. It’ll probably be the same story at its December meeting. Sorry, no early Christmas stocking stuffers.
RBA governor Michele Bullock has been consistent in her message — the board wants to see inflation sitting “sustainably” within that 2 to 3 per cent range. One data set is unlikely to tick that box.
But, forget all that. It’s Cup Day (and possibly the start of a new American revolution) so grab the champagne and — if you have any money left after paying the mortgage — consider an across-the-field flutter.
Until the RBA starts cutting, for now it’s all about the little victories.
Giddy-up.
Key Events
A Trump presidency?
Ms Bullock was asked about what a Donald Trump presidency could mean for global trade, especially given his rhetoric around imposing massive tariffs on China.
She said the board did not do modelling on one specific scenario.
“The United States people are going to make a choice,” she told a packed media conference.
“Once we find out what that is and what policies of that particular person who’s elected and the adminstration then we can make some decisions about what that might imply for the world economy but I think it’s premature to do it ahead of that.”
Bullock sticks to possibility of a rate rise
Governor Michele Bullock says she still can’t rule out a possible rate hike, saying services inflation is running above 5 per cent - showing demand is still ahead of supply - and the labour market is still hot
She said there were some “things at the edges” which means she can’t rule anything in or out.
30 minutes away from learning more
RBA governor Michele Bullock will give us a few more insights into the board’s thinking when she fronts the media pack.
It’s become a fixture of rate call days since the central bank started under a new regime earlier this year.
Could we be waiting even longer for rates to come down?
The RBA’s November Statement on Monetary Policy is pushing the boundaries on when it expects inflation to stay comfortably within the 2 to 3 per cent target range.
Remember, governor Michele Bullock has repeated said the board will not act until it is “sustainably” within that band.
“The forecasts published in today’s Statement on Monetary Policy do not see inflation returning sustainably to the midpoint of the target until 2026,”it said.
That should send a shiver up ever homeonwer’s spine.
Lag effect puts RBA behind its peers
Harvey Bradley, portfolio manager at Insight Investment, reckons the RBA’s slow response to rising inflation after the pandemic could be why homeowners will have to wait longer than the rest of the world for interest rate relief.
“We continue to think that the RBA will be the last developed market, with the exception of Japan, to cut policy rates in this cycle,” he said.
“In part, this is because the RBA were more cautious than other central banks in the hiking cycle and did not take policy rates to as restrictive levels as peers.
“Our base case remains a first cut in Q2 2025, followed by a further 50-75bps to take the policy rate towards a neutral level.”
Mixed views on future rate cuts
New Compare the Market research reveals that Australians have mixed views about what a future rate cut could mean.
According to an October survey of 1006 Australian adults about what a future rate cut would mean:
- 32.9 per cent of Australians aren’t sure what a rate cut would mean
- 32.7 per cent of Australians say it would mean being able to save more
- 14.4 per cent of Australians say they’re concerned it’ll fuel inflation
- 11.3 per cent of Australians say it would mean being able to spend more
- 11 per cent are fearful it might impact rental prices
- 8.8 per cent are worried about how it will impact property prices
Rinse and repeat ...
Sustainably returning inflation to target within a reasonable timeframe remains the Board’s highest priority.
It’s become the standard line we’ve come to expect from the RBA.
Indeed, Michele Bullock - while admiting lifting mortgage rates disproportionally affects homeowners - says higher prices for goods and services affects everyone.
“To date, longer term inflation expectations have been consistent with the inflation target and it is important that this remains the case,” the RBA said.
“The November Statement on Monetary Policy forecasts suggest that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint.
“This reinforces the need to remain vigilant to upside risks to inflation and the board is not ruling anything in or out.
“Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.”
What the RBA had to say ...
The board said inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance.
Headline inflation was 2.8 per cent over the year to the September quarter, down from 3.8 per cent over the year to the June quarter, it noted.
“This was as expected due to declines in fuel and electricity prices in the September quarter,” the board said in a statement released just minutes ago.
“But part of this decline reflects temporary cost of living relief. Abstracting from these effects, underlying inflation (as represented by the trimmed mean) was 3.5 per cent over the year to the September quarter.
“This was as forecast but is still some way from the 2.5 per cent midpoint of the inflation target.
“The forecasts published in today’s Statement on Monetary Policy do not see inflation returning sustainably to the midpoint of the target until 2026.”
And it’s a hold ... again!
OK, no surprises.
The Reserve Bank board will keep rates on hold at 4.35 per cent for a least another five weeks.
10 minutes ...
OK, let’s all take a deep breath. The call’s on its way ... then we can all start looking at the form guide for a late punt ... and hopefully a winner so we can pay for Christmas.
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