What had shaped as a live policy meeting only last week was fairly uneventful in the end as the RBA left its key rates unchanged (cash rate 4.35%, exchange settlement rate 4.25%) today. The Bank of Japan aside, the RBA is probably the most hawkish G10 central bank, with Governor Bullock today actively pushing back against pricing for a rate cut by year-end. But, like its peers, the RBA is in the hands of the data and things could change quickly.
The decision statement from the Board repeated the same key themes from the previous meeting in June: inflation is persistent and above target; the outlook is highly uncertain; and its priority remains on restoring inflation to the 2-3% target range. Given all this, the RBA is not yet talking about cutting rates. In fact, at the post-meeting press conference, Governor Bullock said that a rate cut in the near term (over the remainder of the year) wasn't on the radar and that the Board had considered hiking rates today. But in the final analysis, the Board held a steady hand having been mildly encouraged by last week's Q2 CPI report in which headline (3.8%Y/Y) and core CPI (3.9%Y/Y) printed broadly in line with the RBA's May forecasts.
Alongside today's decision, the RBA published a new set of forecasts in its August Statement on Monetary Policy. The main point to highlight in the August forecasts is that the RBA now expects a slightly later return of inflation to the midpoint of the target band, though still in 2026 and clearly not a significant enough change to warrant a higher cash rate. That shift came about due to the RBA judging that the economy is operating with a greater degree of excess demand than previously assessed. Accordingly, the growth outlook was revised up to 1.7% in 2024 (from 1.6%) and 2.5% in 2025 (from 2.3%). However, the unemployment rate is now seen rising to a peak of 4.4% over the coming year, up from 4.3% previously.
All in all, the RBA characterised today's decision as balancing its objective of returning inflation to target within an acceptable timeframe without coming at the expense of a sharp easing in the labour market. The Board's guidance remains that it is 'not ruling anything in or out' and that it needs to be 'vigilant to upside risks to inflation'. Interestingly, a new line was added to the statement that policy 'will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range'. Many of the RBA's peers now easing policy have used a similar line ahead of cutting rates.
