The minutes from the September 2024 Board meeting were less hawkish than the August notes, when the rate-setting committee all but ruled out any near-term possibility of lowering the cash rate from its 12-year peak.
Ultimately, the Board wrapped up its two-day policy meeting leaving the cash rate unchanged at 4.35% until it meets again on 4-5 November.
However, several scenarios were considered in debating whether to raise, lower, or hold the cash rate steady.
An early rate cut would be considered if…
The minutes revealed that the Board contemplated the case for a "less restrictive" approach if the economy weakens more than expected.
"This could occur if households saved a significantly larger proportion of their incomes than currently assumed, perhaps because of earlier declines in real income and/or more persistent uncertainty," the minutes read.
Other scenarios that sparked the debate included the labour market weakening more sharply than forecast and inflation proving less persistent than assumed even without weaker-than-expected activity.
According to the minutes, this could occur if rent inflation fell more rapidly, firms' cost base fell, or the decline in discretionary spending flowed through more materially to services inflation.
The cash rate may be held longer or raised further if…
However, the Reserve Bank also warned that it could be forced to further tighten its policy if spending picks up materially in response to extra household income generated by the Stage 3 tax cuts and federal relief measures.
As some of these government cost-of-living relief measures only started rolling in July, the RBA expects their impact on consumption growth to materialise in the second half of the year.
"If that were to occur, labour market outcomes could be stronger than forecast and inflation would return to target more slowly," the minutes showed.
The Board also deliberated whether the current cash rate of 4.35% was high enough to bring inflation back to target.
While the latest monthly CPI indicator showed headline inflation rate in August fell within the target range, at 2.7%, which the RBA anticipated, underlying inflation was still well above the band and decelerating slower than forecast.
"And in quarterly terms, [inflation] had fallen very little over the preceding year."
The minutes also described the labour market as still being tighter than full employment but easing broadly as expected.
"The share of unemployed people finding jobs was high and the share of workers losing their jobs was very low," the minutes read.
"Conditions had nonetheless continued to ease as expected and indicators of future labour market conditions suggested that would continue."
The minutes also confirmed that the RBA, while acknowledging the recent developments in overseas central banks, will be ignoring those moves and focusing instead on its domestic priorities.
"It was not necessary for the cash rate target to evolve in line with policy rates in other economies since Australian inflation was higher, the labour market stronger and monetary policy less restrictive than in many other advanced economies," minutes read.
See Also: The Problem with the Strong Labour Figures
The RBA Board adopts a less hawkish tone
There's a marked change in tone in the RBA's messaging in its latest meeting.
The Board's August statement that "it was unlikely that the cash rate would be reduced in the short-term" was omitted from the September notes.
"Indeed, it was toned down in the post-meeting statement and minutes for the September meeting," Westpac Group senior economist Luci Ellis said - herself a former RBA central banker for more than 30 years.
"However, we detect an increasing emphasis on assessments of financial conditions more broadly, and a willingness to see these as a reason to hold the cash rate where it is."
According to economists, this marks another turning point where the RBA leaves the door open to a shift to neutral by the end of the year.
And, potentially, an easing in early 2025 as three of the major banks forecast.
"Overall, the minutes are broadly consistent with NAB's recently revised view of the RBA cutting rates in February 2025 (previously May 2025)," NAB head of market economics Tapas Strickland said.
NAB previously moved its rate cut forecast from May 2025 to an earlier date, in line with Westpac and ANZ; CommBank, meanwhile, expects rate cuts to begin in December this year.
"Our recent move was based on the risks having been skewed to a first cut earlier in 2025, and the recent change acknowledging the balance of risks has likely shifted sufficiently for the RBA to feel comfortable cutting a little sooner than we earlier expected," Mr Strickland explained.
Photo courtesy of the Reserve Bank of Australia
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