The Reserve Bank of Australia (RBA) is “increasingly confident” about an upcoming rate reduction, providing relief to Australian homeowners as inflation shows signs of stabilising.
In its latest monetary policy minutes, the central bank signalled a potential easing of monetary policy may be on the cards sooner rather than later with inflation moving sustainably towards its target range of 2% to 3% per annum.
While the RBA left the official cash rate at 4.35% during its December meeting, the board noted progress in curbing inflation but maintained caution over risks posed by household spending and a tight labour market.
“They agreed that they had gained confidence about this since the previous meeting but risks remained,” the minutes stated.
Analysts are closely monitoring the RBA’s tone. IG market analyst Tony Sycamore highlighted the shift in language, pointing to the removal of references to vigilance over upside inflation risks.
The market is now pricing a 58% chance of a 25 basis point cut in February 2025, with a full rate cut expected by April.
Recent ABS data painted a mixed economic picture, with GDP growth slowing to 0.8% year-on-year — the weakest outside the COVID-19 period since the early 1990s.
Headline inflation fell to 2.1%, aided by government energy rebates, but the trimmed mean inflation, a key measure for the RBA, rose to 3.5% in October.
The RBA reinforced its commitment to prioritising inflation control, even as economic growth weakens.
The International Monetary Fund (IMF) echoed this stance, describing the current restrictive monetary policy as “appropriate” and cautioning against expansive fiscal measures that could destabilise Australia’s narrow path to a soft landing.
Economic growth is forecasted to improve to 2.1% in 2025, driven by real income growth and tax cuts boosting private consumption. However, the RBA reiterated that any relaxation in policy would depend on sustained evidence of declining inflation.