Today's RBA meeting (decision due 2:30pm AEDT) appears relatively straightforward, with the Board expected to continue its on-hold stance leaving the cash rate at 4.35% - a setting unchanged since November last year. Markets have done much of the heavy lifting for the RBA ahead of today's meeting; since the September meeting, the 3-year yield has risen more than 50bps to trade above 4% and pricing for a rate cut has been pushed out to May 2025 from a 50/50 prospect in 2024. Key factors have been the hawkish repricing of the Fed outlook, while on the domestic front strong labour market data has been given more weight than slowing inflation in Q3 driven by one-off electricity rebates. This gives the RBA cover to hold its hawkish line of keeping rates 'sufficiently restrictive' while many of its central bank peers overseas continue to cut rates.
After leaving markets with the sense that policy was calibrated appropriately to balance the risks to its employment and inflation objectives at the conclusion of the September meeting, little is expected from the RBA today. The strength of the domestic labour market has been reaffirmed with employment surging 64.1k in September, holding the unemployment rate to 4.1% as participation lifted to a new record high (67.2%). The Q3 CPI report showed inflation is falling a little ahead of the RBA's forecasts from August; headline inflation slowed from 3.8% to 2.8% and trimmed mean (or core) inflation eased from 3.9% to 3.5%.
These forecasts will be updated in the quarterly Statement on Monetary Policy that will accompany today's decision, but one inflation report where the declines were driven largely by temporary, volatile factors (electricity rebates and fuel prices) is unlikely to prompt a material revision to the RBA's current outlook for inflation to return to the inflation target 'sustainably' in 2026. For a relevant comparison, the ECB required multiple forecast rounds where inflation surprised to the downside before it was confident enough to start its easing cycle.
Overall, the combination of a robust labour market and inflation still seen some way off from sustainably holding in the target range sets up for the RBA to broadly reaffirm its messaging from September. Expect Governor Bullock in the post-meeting press conference to repeat that rate cuts are not on the radar, with more progress needed on inflation before it can move into an easing cycle.