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All through yesterday, there was one claim louder than the rest as Australia waited for the Reserve Bank to deliver its December decision: Some kind of pre-Christmas cut – in line with other central banks around the globe – would make sense.
Despite all those calls, the RBA held firm. No rate cut for a ninth consecutive meeting.
That, just as loudly as those calling for trims, suggests the RBA has a plan it simply won’t be wavering from any time soon – even if bending would be far easier.
What that looks like hasn’t been totally clear over the last few months but after yesterday’s decision to keep things stagnant at 4.35% again and then Michele Bullock’s comments and key responses through her presser an hour later (most of which were quite dovish, if you ask this finance journalist) we start to see the picture.
One key battleground the RBA is watching closely is, of course, inflation. It still wants to see it ease further. “It remains too high,” the central bank said in a written address.
That’s not to say things aren’t moving in right the direction though – if a little slowly.
“We think things so far are moving in line with our forecasts,” Ms Bullock said, pointing in particular to quarterly prints. “If they continue to move in line with our forecasts, then at some point inflation… we’re going to be convinced that inflation is coming back to the band and we’ll be in a position to consider that.”
In her comments, Ms Bullock revealed the RBA feels at least somewhat similarly to analysts and punters in that a rate cut wouldn’t go astray soon. Unlike outside forces though, the RBA’s governor has to be certain when she makes the call.
“We’re not saying what we might do,” the RBA figurehead continued, “but we are acknowledging that there is some softening and our forecast is to see inflation coming back down gradually over the next year.”
Even more positively, she added: “As each quarter goes by, and our forecasts look like they’re basically in line… that gives us a little bit more confidence in the future.”
And so how does this all impact the RBA’s secret-slash-not-so-secret battle plan?
Well, the battle’s not over yet – Bullock was very firm on that – but a turning point is in sight. The RBA made a point to “not explicitly consider an interest rate cut” in its last 2024 meeting as it already had a date circled.
“The board spent time talking about what are the sorts of things that would make them move one direction or the other,” Bullock explained.
The plan, it seems, is to tee up the turning point for February next year.
There are always more factors the RBA will take into account, including loosening in the labour market (which the central bank has long said it watches) as well as predicted economic expansion to the end of the year.
But, markets have begun moving already. Everyone loves to price things early, we know that well by now, and the Aussie dollar was the first to shift down on the dovish comments. The bond markets were quick to follow too, with traders in that space ramping up bets that changes are coming somewhere in early 2025.
No promises from anyone on cuts just yet though: Ms Bullock wouldn’t be cornered into any trimming pledges during the RBA’s conference on December 10, declaring “I honestly don’t know if we’re going to be cutting in February.”
“We’re going to be looking at the data and be data-driven,” she added.
All this says for anyone playing along is the RBA won’t be shaken (or stirred) into action before it’s ready. The masterminds at the central bank have a plan they’re not so willing to share, but it will unfold sooner rather than later.
Last time it was Ms Bullock and the RBA “not ruling anything in or out.” Now it’s sticking to the plan. Next, maybe, that behind-the-scenes plan means rate cuts.
The RBA’s next meeting will now be in the new year, from Monday, February 17.
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