RBA overnight index swaps have priced in no change for next week's meeting, however, markets increasingly expect a 25-basis=point cut by December and a terminal rate of 3.34% by August.
Former RBA economists have told MNI the Reserve will likely wait until at least Q1 2025 before easing. (See MNI: Markets Overplaying End-of-Year RBA Cut - Ex-Economists)
The Board has held the cash rate steady since it last hiked 25bp in Nov 2023.
LABOUR MARKET
Unemployment held steady over August at 4.2%, in line with market expectations and the RBA’s forecast, which has the rate at 4.3% by Q3. However, job creation again surprised, with the economy adding 47,500 positions compared to the expected 26,000.
The job market’s resilience is in line with the RBA’s concerns in its August Statement on Monetary Policy over the tight labour market and excess capacity, which it said it had previously underestimated.
Assistant Governor Sarah Hunter elaborated on the labour market recently, noting it was operating above full employment. (See chart)
Productivity growth has also failed to perform in line with the RBA’s view, with Q2 National Accounts showing GDP per hour worked fell by 0.8% q/q. While the miss may not fuel a shift in the RBA’s forecasts, it will inject greater caution into any move towards an easing stance.
CPI MOVES
Inflation, particularly services and housing costs, have continued to remain high. While government policy will force headline CPI to fall, the Reserve will look through this and focus on trimmed mean, which will continue to decline moderately.
The RBA will want to review Q3 CPI, wages and GDP data, with updates available prior to its Dec 9-10 meeting. However, one economist recently told MNI the Reserve's easing cycle will likely be a shallow one as the current cash rate was not far from neutral.