There is “no chance” interest rates will go up or down next week when the Reserve Bank of Australia board meets for the first time for 2024, economists say.
Rates will stay on hold at 4.35 per cent in the face of the inflation rate falling more quickly than expected, weak retail sales and poor consumer sentiment given the weighty interest rate hikes to date, analysts on Friday forecast.
The RBA’s first meeting of the year has been widely anticipated given changes to its structure, the bank’s quarterly forecasts moving to be released at the same time as the rates decision, and governor Michele Bullock conducting a press conference shortly after.
The bank and economists hope the increase in communication will help make it easier for people to understand why it is making its decisions.
Interest rates were last increased in November last year, to 4.35 per cent, after several months on hold. This followed a rapid rise from 0.1 per cent in May 2022 as the RBA worked to push inflation — which reached three-decade highs — lower.
But with inflation now at 4.1 per cent, a two-year low and one percentage point above the top of the RBA’s target range, economists say the huge rate hikes of the past two years is finally working.
“We expect the cash rate will be left on hold and see no chance of any other outcome,” Commonwealth Bank head of Australian economics Gareth Aird said.
“The case to leave monetary policy on hold next week is stronger than at any point in the last two years.”
The fall of inflation was greater than had been expected by many economists — and even by the RBA itself. The key inflation metric, a measure known as trimmed mean that removes price movements of volatile items such as food and petrol, was 0.3 percentage points lower than the bank had expected.
Mr Aird said the bank would “very much embrace” that data being lower than it expected.
“The job of returning inflation to the 2 to 3 per cent target band is not yet done,” he said. “But the RBA is now on the home straight.”
ANZ head of Australian economics Adam Boyton expects the RBA to be particularly cautious in its moves this year.
Most economists expect the RBA will retain what’s known as a “hiking bias” in its post-board meeting statements and commentary — suggesting it will likely hint more rate hikes could be ahead if the data warrants it. But they do not expect this will occur given the gradual loosening of the national labour market and continued signs of a pullback in discretionary spending.
Others have suggested rate cuts occurring too quickly could suggest to consumers the inflation fight is over, and could threaten the progress made to date. They could also reinvigorate interest in the housing market — particularly the most expensive cities of Melbourne and Sydney where price growth has noticeably slowed. (Perth, Adelaide and Brisbane prices are still reaching record highs, according to analysts CoreLogic.)
“The RBA will want to be very confident that inflation is coming back to the (target) band in a sustainable fashion before changing its rhetoric,” he said, expecting the bank to maintain a hiking bias.
ANZ does not expect rate cuts until November — CBA is suggesting September and AMP June — but Mr Boyton acknowledged there were risks emerging the first cut could be earlier than November.
But HSBC chief economist Paul Bloxham said it was still too early to be discussing rate cuts.
“Inflation is falling but is still well above the RBA’s 2 to 3 per cent target band . . . ‘sticky’ local inflation means that rate cuts are unlikely in 2024.”
After Tuesday’s rates decision and media conference, Ms Bullock faces Federal Parliament on Friday.