RBA Remains “Vigilant” & Flexible Given Core Has Moderated Little Recently

The RBA left rates at 4.35% as expected and maintained its language and at the margin was slightly more hawkish with inflation to return to the band by “late in 2025” rather than the “second half of 2025” and quarterly core has fallen “very little over the past year”. It added that policy will need to be “sufficiently restrictive” until the Board is “confident” inflation is “sustainably” moving towards target. It remains “vigilant to upside risks to inflation” and continues not to rule “anything in or out”. At this stage, a 2024 rate cut is looking less likely.

• The softer AUD and financial markets were mentioned.
• The RBA updated its forecasts which included not only new data points but also state and federal government stimulus. Headline inflation is down 0.8pp in Q4 2024 to 3.0% but then rises to 3.7% in Q4 2025 with the end of electricity relief and returns to the band mid-point by Q4 2026. Oil prices were revised down about $5/bbl, which would have also impacted headline forecasts.
• During this time it will be important to focus on trimmed mean inflation, which saw minimal revisions with Q4 2024 +0.1pp to 3.5% with it in the band in Q4 2025, the same as May. It is now close to the mid-point in Q4 2026, 2 quarters later than previously. The downward revision to the market-pricing of the OCR would have added upward pressure.
• Fiscal stimulus can also be seen in a sharp increase in public demand growth which is now expected to be 4.3% y/y in Q4 2024 (from 1.5%) and 4.1% in Q2 2025 (2.1%), while Q4 was unchanged at 3.0%. This has boosted domestic demand in 2024, along with stronger consumption.
• Employment growth was revised up, while the unemployment rate is 0.1pp higher across the forecast period. This is only a slight change and likely within the error band.