Australia's cash rate last moved a year ago when the RBA Board voted to hoist it to its current 12-year high during their November 2023 meeting, also a widely anticipated outcome then.

The Tuesday decision was hardly a surprise to anybody, given that the inflation rate, despite printing towards the RBA's expectations, remain above the range the rate-setting committee finds sustainably ideal before ruling in any cuts.

"While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high," the Board noted in its post-meeting statement.

Annual headline inflation rate came in at 2.8% in the September quarter, significantly slowed by declines in electricity and fuel prices.

Excluding items with volatile price changes though (which include those aforementioned), trimmed mean inflation rate was 3.5%.

"The November SMP forecasts suggest that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint," the Board said.

"This reinforces the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out."

Echoing its statement in several meetings to date, RBA Governor Michele Bullock and the Board said, "Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range."

RBA adjusts SMP forecast figures

Despite the unsurprising announcement, worth noting in this meeting was the RBA's apparent optimism that near-term inflation will ease slightly faster previously forecast.

In its latest Statement on Monetary Policy (SMP), the Reserve Bank updated its forecast on core inflation, predicting a gradual decrease until it reaches the mid-point of 2.5% (previously 2.6%) by the end of 2026.

See below the changes in the RBA's SMP forecasts on trimmed mean inflation throughout the year.

RBA Trimmed Mean Inflation Forecast

The November SMP highlighted that the recent decline in headline inflation is "expected to be temporary," and will likely increase again as cost-of-living relief unwinds.

And while the RBA anticipates underlying inflation to ease slowly as demand balances with supply, the Board admitted the outlook remains highly uncertain.

"On the one hand, if conditions in the labour market are stronger than expected and productivity growth remains weak, this could slow progress in bringing inflation to target," the statement reads.

"On the other hand, household spending might not increase as quickly as expected, which could mean that inflation returns to target faster."

The labour market remains tight and total demand for goods and services still exceeds supply.

"But the gap between demand and supply is narrowing and inflation is coming down slowly," the RBA noted.

RBA revises forecasts on GDP, public demand

The updated quarterly forecasts suggest that the country's economy will grow slightly slower by the end of the year than previously predicted.

The projected government spending boost to the economy in December 2024 has been revised to 4.0%, down from the 4.3% forecast in the August SMP.

In her scheduled press conference post-meeting, Gov Bullock chalked the revision up to the timing of project rollouts and additional announcements made by both federal and state governments.

The RBA, however, expects public demand to pick up to 4.4.% next year, up from the 4.1% August SMP forecast, considering increased government spending during the election season.

Australian economy is also expected to pick up to 1% in the year to June but will ease slightly to 1.5% in December (previously 1.7%) as net migration rates retreat.

The latest Statement on Monetary Policy reflects that GDP growth is expected to return to a potential growth rate by late 2025, however, the domestic activity is expected to be less pronounced than forecast three months ago.

What the market thinks of the RBA's decision

On the first day of the meeting, 95% of the ASX traders believed the headline rate and trimmed mean outcomes were not material enough to warrant a policy reponse in November, historically a popular month for cash rate changes.

Similarly, none of the four major banks considered a cut was happening at the end of the Board's two-day policy meeting 30 minutes before the big race at Flemington Racecourse commenced.

They also recently agreed together in predicting that the first cash rate cut is slated in February, after CBA canned its December cut call in light of the September CPI print.

NAB, however, is suggesting a later start may be likely, saying "local data is evolving slowly".

"We expect an only gradual cutting cycle, with a data backdrop that creates little urgency," said Tapas Strickland, NAB head of market economics.

"As such, we continue to note the risks skew to a later first cut.

Judo Bank's Warren Hogan, however, believes a February move may be too early, expecting instead that the cash rate would stay at its current level until 2026.

This is after Mr Hogan moved away from calling for of a series of cash rate hikes in 2024.

The RBA Board will meet one more time - the last one this year - on 9-10 December, before the awaited February meeting.

Read more: Economic News Interest rates RBA

Bernadette Lunas

Finance Journalist

Bernadette is a journalist with years of experience covering topics in macroeconomics, real estate, and lifestyle beats for notable print media organisations. She joined the InfoChoice Group in 2024, bringing her passion for writing stories that help Australians make better decisions about money.

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