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RBA: Inflation In Band In 2026 With No "Near Term" Rate Change

RBA
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The minutes noted that “more than one good quarterly inflation outcome” would be needed for it to be “confident” that inflation was sustainably returning to target, if it turned out that the temporarily lower headline inflation resulted in a greater drop in inflation expectations and indexation. Q4 CPI is released on January 29 and Q1 at the end of April, thus May 20 may be the earliest meeting for a rate cut, consistent with current market pricing. The RBA remains ready to “adjust” policy. 

  • The Board observed that the OCR assumption used in the updated forecasts, based on market pricing, didn’t include “any change” in the “near term” – a return of the phrase that Governor Bullock used a few months ago to dampen rate cut expectations. With the economy developing as expected and staff projections evaluated as “consistent” with the Board’s “strategy”, there was no “need” to change rates. The market has the first full 25bp rate cut in May 2025.
  • The RBA’s OCR profile includes close to one 25bp rate cut by mid-2025 with almost another two by end-2025 followed by one in H1 2026.
  • With the risks around its forecasts “balanced”, the Board is prepared to change rates in either direction and discussed scenarios that would drive a shift or a continuation of the prolonged hold.
  • It discussed downside and upside surprises to consumption growth from consumer confidence and household wealth & cash flows, and the labour market from staff hoarding. Its business liaison programme was yet to widely report layoffs and no intention to fill vacancies.
  • The supply side was seen as a risk that may require tighter policy if the estimate of potential growth was “too optimistic” and productivity continued to disappoint. The other upside risk is if rates are not as “restrictive” as the Board believes and it is monitoring bank lending and asset prices to judge this.
  • Risks from overseas cannot yet be estimated due to a lack of detail. 
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The minutes noted that “more than one good quarterly inflation outcome” would be needed for it to be “confident” that inflation was sustainably returning to target, if it turned out that the temporarily lower headline inflation resulted in a greater drop in inflation expectations and indexation. Q4 CPI is released on January 29 and Q1 at the end of April, thus May 20 may be the earliest meeting for a rate cut, consistent with current market pricing. The RBA remains ready to “adjust” policy. 

  • The Board observed that the OCR assumption used in the updated forecasts, based on market pricing, didn’t include “any change” in the “near term” – a return of the phrase that Governor Bullock used a few months ago to dampen rate cut expectations. With the economy developing as expected and staff projections evaluated as “consistent” with the Board’s “strategy”, there was no “need” to change rates. The market has the first full 25bp rate cut in May 2025.
  • The RBA’s OCR profile includes close to one 25bp rate cut by mid-2025 with almost another two by end-2025 followed by one in H1 2026.
  • With the risks around its forecasts “balanced”, the Board is prepared to change rates in either direction and discussed scenarios that would drive a shift or a continuation of the prolonged hold.
  • It discussed downside and upside surprises to consumption growth from consumer confidence and household wealth & cash flows, and the labour market from staff hoarding. Its business liaison programme was yet to widely report layoffs and no intention to fill vacancies.
  • The supply side was seen as a risk that may require tighter policy if the estimate of potential growth was “too optimistic” and productivity continued to disappoint. The other upside risk is if rates are not as “restrictive” as the Board believes and it is monitoring bank lending and asset prices to judge this.
  • Risks from overseas cannot yet be estimated due to a lack of detail.