Rate cuts still far away

No surprises emerged from the Reserve Bank of Australia’s first two-day monthly Board meeting for 2024 with the central bank leaving the cash rate unchanged at 4.35 per cent.

RSM Australia Economist Devika Shivadekar said the Reserve Bank Board’s decision was consistent with RSM’s expectations as was the retention of the central bank’s hawkish bias.``Today’s decision and tone is in line with our expectations that the RBA would be on a watchful hold,’’ she said.

``Despite inflation trending downwards, we see today’s hold as a step to manage inflation expectations,’’ she said.

`"As RSM highlighted previously, fiscal stimulus in the form of rent and energy subsidies largely featured in the December 2023 quarter’s soft inflation numbers, therefore it is not surprising that the soft inflation data didn't sway the needle for the central bank.’’

Ms Shivadekar said RSM expected the RBA to maintain the cash rate at a restrictive level until it was certain `` inflation momentum, especially in services, has weakened without fiscal stimulus.’’.

 "A clear cover in the form of consistently falling inflation towards its desired levels is what the RBA would be looking for before it considers a pivot to cut the cash rate. Providing hope of a rate cut too early, could instil too much confidence in households and businesses, which could potentially spur spending. We maintain our stance that the cash rate hold remains until the third quarter of 2024.’’

RSM Australia Chief Executive Partner Jamie O’Rourke said while today’s cash rate decision did not deliver any immediate relief for businesses or households, it offered some hope that the RBA’s hiking cycle was over.

`"The RBA acknowledged that inflation was easing and demand was moderating, confirming that higher interest rates have been doing their job of balancing supply and demand in the economy,’’ he said.

FOR MORE INFORMATION

If you would like to learn more about the topics discussed in this article, please contact Devika Shivadekar.