How soon the Reserve Bank might cut interest rates will be the focus for borrowers and economists alike when the central bank wraps up its latest meeting on Tuesday.
Governor Michele Bullock is expected to keep the RBA’s key rate unchanged for a seventh meeting in a row, according to a survey of 45 economists by Reuters. The bank lifted the rate 13 times between May 2022 and last November.
Bullock used her post-rates decision media conference in August to douse hopes of a rate cut “in the near term”. Since then, however, June quarter GDP figures revealed a further slowdown in growth, and the governor’s US counterparts have joined other central banks in cutting official interest rates, for the first time in four years.
Importantly, household consumption grew less than half the 1.1% pace the RBA had expected for the quarter, implying the bank had erred on its forecasts for about half the economy. On the other hand, public spending growth has taken up some of the slack and is likely to continue to stoke demand in the economy.
Inflation, too, has resumed its slide, reaching an annual pace of 3.5% in July. Monthly CPI numbers for August are widely tipped to fall within the RBA’s 2-3% target range when they land on Wednesday - 21 hours after the RBA’s two-day meeting ends.
However, Bullock has made it clear the RBA’s preferred inflation measure is the more comprehensive quarterly set of numbers, including the trimmed mean gauge that strips out volatile movers. The Australian Bureau of Statistics won’t release these until 30 October, about a week before the RBA board’s next meeting on 4-5 November.
Gareth Aird, chief of Australian economics at CBA, said one point of note would be whether the RBA board considered the case for another interest rate increase along with an argument for staying put. “If they do, it’ll probably only be paying lip service” to a rate rise, Aird said.
If the board reverted to mulling merely the case for no change to the cash rate, it would be the first time the board considered just one option since its March gathering, or four meetings ago, Aird said.
While the past month had shown economic activity was “a little bit softer” than the RBA had predicted, the board was unlikely to be actively weighing up an interest rate cut just yet, he said. Consumers also appeared to be pocketing most of the stage three tax cuts that kicked in on 1 July.
CBA, the country’s biggest bank, last week put back its forecast of when the RBA would start cutting the cash rate from November until the final boarding meeting of the year on 9-10 December.
Of the other big banks, ANZ and Westpac predicted the first rate cut would come at the following meeting – 17-18 February 2025. NAB reckoned borrowers wouldn’t get any relief until 19-20 May. That’s three years after the central bank began lifting rates.
More evidence of a weak economy arrived on Monday, with the release of Judo Bank’s purchasing managing index for September.
Activity in the private sector declined in the month “amid a sustained manufacturing downturn”, it said. Manufacturing measures reached 52-week lows.
Still, in an echo of August’s ABS data that showed the economy continued to generate almost 50,000 jobs a month, companies were still looking to expand.
“Overall new business … remained on the rise in the Australian private sector, which supported an expansion of workforce capacity in September, though this was limited to the service sector,” Judo Bank said.
