October 8th 2024.
The Reserve Bank has expressed concerns about the possibility of raising interest rates in the upcoming months, but also acknowledged the potential for an earlier-than-expected rate cut if the economy weakens beyond expectations. In the minutes of their September board meeting, released this morning, the RBA highlighted the uncertainty surrounding the economy and their decision-making process regarding the cash rate.
Governor Michele Bullock and her board discussed various scenarios that could lead to a rate increase, which would mark the 14th time since early 2022 and bring rates to their highest level since mid-2011. These scenarios include the likelihood of households primarily utilizing their additional income from the stage 3 tax cuts, thereby keeping inflation elevated for a longer period, as well as potential issues with supply and productivity in the economy.
Furthermore, the bank recognized that the current rate of 4.35 per cent may not be sufficient to bring inflation back to their desired target. If this proves to be the case, the minutes state that "monetary policy could need to be tightened," even if the board's predictions about consumption, the labor market, and supply potential are accurate. On the other hand, the RBA also acknowledged the possibility of an early rate cut if the economy continues to deteriorate, households choose to save most of their tax cuts, or if unemployment rises beyond expectations.
The RBA also noted that stagnant rents, petrol prices, and other crucial inflation drivers could lead to an earlier-than-expected rate cut. As 9News finance editor Chris Kohler stated, the RBA seems to be hedging their bets, with their catchphrase being "can't rule anything in, can't rule anything out." The board remains data-driven, with crucial data points such as employment figures next week and the quarterly inflation read at the end of the month being crucial factors in their decision-making process.
The most recent unemployment data was generally in line with forecasts, while the previous headline inflation figures, released the day after the RBA's decision to keep rates steady, showed a predicted decrease within the target range of 2-3 per cent. Although this was due to lower petrol prices and the federal government's energy bill relief, the underlying measures of inflation that Governor Bullock and her board consider also offered some optimism, reaching their lowest levels in nearly three years.
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