Source : the age
Slowing wages growth and an economy barely out of first gear have given the Reserve Bank more ammunition to consider an interest rate cut at its first meeting of 2025, providing a timeline for Prime Minister Anthony Albanese to call the federal election.
Minutes of the RBA board’s December meeting, at which the official cash rate was kept at 4.35 per cent, reveal a marked change in the bank’s outlook for the economy and inflation that sparked hope of a rate cut in February.
Minutes of the Reserve Bank’s most recent meeting show a rate cut getting closer.Credit: Oscar Colman
The bank had, for much of the year, said it was difficult to “rule in or rule out” further changes to the cash rate. This term disappeared when the board revealed this month the cash rate had been held steady.
The minutes, released on Tuesday, show board members believe inflation pressures may be easing even faster than they had been anticipating. National accounts revealed ahead of the December meeting showed the economy expanding by just 0.8 per cent while wage growth, at 3.5 per cent, had slowed.
“Members judged that the risk that inflation returns to target more slowly than forecast had diminished since the previous meeting, and that the downside risks to activity had strengthened,” the minutes showed.
“A consideration underpinning this judgement was reduced momentum in GDP growth over the year to the September quarter.
“A second consideration was developments in wages growth, which had slowed by more than expected. Members discussed whether this could signal that potential labour supply was more abundant than had been assumed.”
The minutes show that while board members believed the chances of higher-than-expected inflation had fallen, it was still “too soon to conclude with full confidence” that inflation was on track to hit the RBA’s 2 to 3 per cent target.
A key concern among some economists has been strong jobs growth, with the country adding 400,000 jobs over the past 12 months. November’s unemployment rate, which was released after the RBA’s meeting, fell to 3.9 per cent.
Documents obtained by this masthead under freedom of information showed that within the bank, staff believed the jobs market was only “gradually” softening to the point at which the unemployment rate was unlikely to be adding to inflationary pressures.
Many of the new jobs have been created in the so-called “non-market sector” which are areas with heavy government regulation or presence, such as health, aged care and social services.
But the minutes show the bank is more concerned that the absence of jobs being created in the private sector could be a harbinger of more pressing problems.
“Given the weakness in private demand and the slow pace of job creation in the market sector, members were alert to the risk that the unemployment rate could increase by more than expected if labour demand in the non-market sector were to slow abruptly,” the minutes showed.
The RBA board next meets in mid-February, soon after key measures of monthly and quarterly inflation are due to be released by the Australian Bureau of Statistics.
Some economists are already tipping inflation in the December quarter will come in under the RBA’s own forecasts, prompting expectations of a rate cut at the February meeting.
The minutes show the bank believes there is a risk the December inflation report will be softer than expected, due in part to a small easing in rents and the cost of building new homes.
J.P. Morgan economist Ben Jarman said the minutes “suggest a cut is coming into frame”.
He said softer news on inflation, wages, economic growth and household consumption all meant the chances of a rate cut at the bank’s February meeting were on the rise.
Jarman, who expects the bank to move in February, noted the minutes showed the board had opted to leave the cash rate steady “at this meeting”, a term it had used on previous occasions just ahead of a rate cut.
A quarter percentage point would save a person with a $600,000 mortgage about $100 on their monthly repayments.
AMP chief economist Shane Oliver said the February meeting was now “live”, noting that if upcoming figures such as inflation were in line or below the RBA’s expectations then it would consider a rate cut.
A rate cut in mid-February would enable Albanese, whose term as prime minister has been dominated by cost-of-living issues, to call an election for late March or early April.
Justin Fabo from Antipodean Macro said the commentary in the minutes suggested the chance of an earlier-than-expected rate cut.
“We have a cash rate cut pencilled in for mid-2025. The dovish tone of recent RBA communications feel like the risks are skewed to an earlier kick-off to policy easing,” he said.
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