New data shows that inflation has now fallen within the RBA’s target range of 2-3 percent, primarily due to energy rebates. The Australian Bureau of Statistics (ABS) released the monthly Consumer Price Index (CPI) for August 2024, indicating that inflation rose by 2.7 percent over the past year, down from 3.5 percent in July 2024. The main factors contributing to the decrease in CPI were lower electricity prices, largely due to the government’s $300 energy rebates implemented in July 2024, and a drop in petrol and automotive fuel costs.
What actions will the RBA take?
With the monthly inflation figure now within the Reserve Bank of Australia’s target range of 2-3 percent, the RBA has indicated it may consider reducing the official cash rate, but not anytime soon.
During its monetary policy meeting on September 24, RBA Governor Michele Bullock warned that energy rebates could be temporarily suppressing inflation. She emphasised that inflation needs to return to the target level “sustainably” and within a reasonable timeframe before any decisions are made, stating that “headline inflation is expected to fall further temporarily, as a result of federal and state cost of living relief. However, our current forecasts do not see inflation returning sustainably to target until 2026”.
She stated that new data has “reinforced the need to remain vigilant to upside risks to inflation and the board is not ruling anything in or out”.
“Policy will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range.”
The board’s dedication to bringing inflation to the midpoint of the 2–3 per cent target range is seemingly stubborn, with a very cautious approach to reducing the cash rate in Australia.
However, the international market is beginning to show signs of hope for Australia. In particular, the United States of America reducing the cash rate…one which Australia is heavily impacted by.
When do the Big Four banks expect interest rates to drop?
The Commonwealth Bank anticipates that the RBA will cut rates in December 2024, predicting a total of five 0.25 percent cuts by the end of 2025, bringing the cash rate to 3.10 percent.
Westpac expects a cut in February 2025, forecasting four 0.25 percent reductions that would lower the cash rate to 3.35 percent.
NAB also believes a cut could occur in May 2025, but notes that February is a possibility, projecting five 0.25 percent cuts to reach 3.10 percent.
Meanwhile, ANZ has predicted a cut in February 2025, with three total cuts bringing the cash rate down to 3.60 percent.
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