Australian Central Bank Holds Steady Rates in November 2024 Amidst Inflation Watch

Key Takeaways from the RBA's November Interest Rate Decision

• Cash rate held steady at 3.60%.
• Underlying inflation edged up to 3.0%.
• Economic recovery ongoing but uncertainty remains.
• Labor market remains tight despite some easing.
• Close monitoring of data and risks to achieve price stability and full employment.

Full Text of the Monetary Policy Statement

At its meeting today, the Board decided to leave the cash rate unchanged at 3.60 per cent.

Inflation Has Recently Picked Up

Inflation has fallen substantially since its peak in 2022 as higher interest rates have helped bring aggregate demand more in line with potential supply. However, inflation has picked up again recently. Underlying inflation, as measured by the trimmed mean, rose by 1.0 per cent in the September quarter, to be 3.0 per cent in year-ended terms, which was higher than the 2.7 per cent in the June quarter and noticeably above the expectations in the August Statement on Monetary Policy. Headline inflation rose sharply to 3.2 per cent in year-ended terms in the September quarter, partly reflecting the unwinding of electricity rebates in several states; a significant part of this increase had been previously anticipated.

The Board judges that some of the pick-up in underlying inflation in the September quarter was due to temporary factors. Consistent with the baseline forecasts in the November Statement on Monetary Policy (which technically assume one further rate cut in 2026), underlying inflation is expected to rise to above 3 per cent over the next few quarters, before declining to 2.6 per cent in 2027.

Domestic Economic Activity is Recovering but Uncertainty Remains

Consumption data suggest that the pick-up in private demand in the June quarter has continued. Housing market conditions have continued to strengthen, suggesting that the recent interest rate cuts are having an effect. Housing prices have risen and housing construction costs have also begun to rise again after a period of weak growth. Credit remains readily available to households and businesses.

Labor Market Remains Tight

A range of indicators suggest that labour market conditions remain a little tight, although there has been some recent easing. Employment growth has slowed a little more than expected and the unemployment rate rose from 4.3 per cent in August to 4.5 per cent in September. Nevertheless, measures of labour underutilisation remain low, job vacancies are still plentiful, and business surveys and liaison suggest that a significant share of firms continue to experience difficulty hiring. After abstracting from quarterly volatility, wages growth has declined from its peak, but productivity growth remains weak and unit labour cost growth remains elevated.

Risks and Challenges

The latest domestic and international developments bring uncertainty to the outlook for economic activity and inflation. On the domestic front, if the pick-up in private demand continues to exceed expectations, this could raise labour demand, add to capacity pressures and make it easier for firms to pass on cost increases to consumers. Conversely, it is possible that the improvement in private demand will prove difficult to sustain.

Uncertainty in the global economy remains elevated, but so far has had a limited effect on overall growth and trade, and many forecasting agencies have upgraded their forecasts for global growth in the near term. Trade policy developments are still expected to have an adverse effect on global growth in the future. In addition to tariffs, broader geopolitical risks continue to pose a threat to the global economy. These factors could combine to reduce aggregate demand growth and lead to weaker domestic labour market conditions.

In addition, there are a number of uncertainties around the current assessment that monetary policy is still a little tight, the lagged effects of recent easing policies, the balance between aggregate supply and demand for goods and services, labour market conditions and the outlook for productivity growth. These uncertainties place the outlook for inflation and employment on both sides of risk.

Maintaining Price Stability and Full Employment is the Priority

The latest inflation data suggest that there may still be some inflationary pressures in the economy. With private demand picking up and the labor market remaining a little tight, the Board considers that maintaining the current level of the cash rate is appropriate at this meeting. Financial conditions have eased since the beginning of the year, but the full effect of previous rate cuts will take some time to show. Given this and recent signs of persistent inflation, the Board believes that caution should be exercised, with forecasts being constantly updated as data changes. The Committee remains highly focused on the uncertainty of the outlook, regardless of its direction.

The Board will closely monitor data and the evolution of prospects and risks to guide its decisions. In this process, it will focus on developments in the global economy and financial markets, domestic demand trends, and inflation and labor market outlook. The Committee will focus on fulfilling its duties to stabilize prices and achieve full employment, and will take the steps it deems necessary to achieve this goal.

Decision

Today's policy decision was unanimously adopted.