Key Points
- Most economists expect the Reserve Bank of Australia to keep interest rates at 4.35 per cent this month.
- The RBA has been lifting interest rates to bring down inflation and the latest figures indicate that is happening.
- While an increase in December can't be ruled out, many say there is more likelihood of a rise in February.
Interest rates are widely expected to remain on hold after the central bank's final monetary policy meeting of the year on Tuesday.
Most experts are leaning towards no change to the official cash rate when Reserve Bank of Australia (RBA) board members gather for their final meeting of the year.
The RBA lifted interest rates to 4.35 per cent, after several months of the cash rate being on hold.
There have been 13 increases in Australia's official interest rate since 2022. Source: SBS News
The RBA has been increasing interest rates in an attempt to wrangle inflation back to its target rate of between 2 to 3 per cent by late 2025.
What economists are tipping
While the RBA has kept the door open to further tightening, few economists expect interest rates to rise again in December.
Four in five economists and experts survyed by comparison site Finder said the cash rate would be left unchanged on Tuesday, though nearly half were tipping another increase in coming months.
Chief economist and head of investment strategy at AMP, Shane Oliver, told SBS News the RBA did not appear to have the same sense of urgency that it had before its last meeting when interest rates were hiked.
“The flow of economic data has been a little bit softer, we've seen a fall in retail sales, unemployment has drifted up a little bit, house price growth has slowed down and most importantly, the monthly CPI was weaker than expected,” he said.
Moody's Analytics economist Harry Murphy Cruise agreed the lower-than-expected October inflation data, showing a moderation to 4.9 per cent from 5.6 per cent in September, underpinned the case for interest rates to be unchanged in December.
"Combined with the monthly fall in retail sales through October, it is clear that higher interest rates are quelling demand and - by extension - inflation," he said.
"That should be enough to save the Reserve Bank board from having to be the Grinch of Christmas when it meets next week."
Annual inflation sat at 4.9 per cent as of October after having risen to a peak of 8.4 per cent in December 2022. Source: SBS News
The institute's monthly inflation gauge grew 4.4 per cent over the 12 months to November, 0.7 percentage points lower than the 5.1 per cent annual lift to October.
The authors of the monthly report said the sharp fall in annual inflation increased the chances of inflation coming back within the 2 to 3 per cent target range before 2025.
The case for an unexpected rate rise in December
"The RBA may simply conclude that the risk of inflation taking longer to get back to target is just too high to wait any longer and they move ahead with another hike," Oliver said.
"The recent comments and there's been quite a few minutes which were all a little bit hawkish and warn that inflation is taking longer than expected to get back to target and the longer it takes, the bigger the risk that it will stay permanently high and take longer to get back down again."
Oliver pointed out that the extended period between meetings over the Christmas/New Year period could also play a factor in the decision.
"The February meeting is two months away, so you could argue well, we don't know what will happen in the next two months, we'll just get it over with and go [increase rates] now."
How long could rates stay on hold?
Oliver said the consensus among economists was "pretty much we have reached the peak at 4.35 per cent ahead of rate cuts in the December quarter next year."
However, he believes there is probably a 40 per cent chance of an increase in February.
"By then they will have received the December quarter inflation data, they'll also have two more monthly figures for retail sales and jobs and there is also another month where the RBA revises its forecasts, so if they're going to move again, it's probably going to be in February," Oliver said.
He said the RBA's soon-to-be-updated goals of monetary policy would also play a factor in future decisions.
"The government and the RBA will sign off on a new agreement regarding the goals of monetary policy," Oliver said.
These goals are expected to refine the target interest rate.
"The reports are that they'll be following the recommendation of the review that was released back in April which suggested that it should target the midpoint of the 2 to 3 per cent range, which is 2.5," Oliver said.
"If they're actually targeting 2.5 per cent, that may bias them to move again as well."
Last planned monthly meeting for the RBA
There will be two months between thhe December meeting of the Reserve Bank of Australia's board and the following meeting. Source: AAP / Joel Carrett
The first meeting for 2024 is scheduled to start on 5 February and will run across two days, with the decision on interest rates to be announced on the second day.
"The change in frequency could increase the risk that if they are mindful of doing something, in this case, possibly considering another hike, they could go rather than wait," Oliver said.
