RBA Newsflash: June 2024

Updated June 18th 2024

The Reserve Bank of Australia (RBA) has held the official cash rate steady at 4.35% during its June monetary policy meeting.

This cash rate decision has marked the 4th hold for 2024, and the 5th consecutive hold since December 2023.

This ongoing pause reflects the “anticipated easing in inflation” as the economy, businesses, and consumers continue to adjust to the significant interest rate tightening delivered since May 2022.

Despite higher-than-expected inflation early in 2024, weak retail sales, slowed economic growth and low consumer sentiment persist. While inflation has not fallen as quickly as expected, the Board anticipates a further decline in inflation by the end of the year.

Although rate cuts are now expected in 2025, most still predict the next move will be down. The upcoming June 2024 quarterly inflation data will be a key determinant of whether the Reserve Bank needs to lift rates again or adjust expectations for the timing of an interest rate cut.

The RBA is still of the view that monetary policy is “set at the right level” to keep moving inflation down into the target band.

An obvious key risk to the inflation outlook is the upcoming income tax cuts that will flow through to pay packets next month.

However, most surveys point to households allocating their tax savings to essentials that have already gone up in price – such as mortgages and rents, and electricity and gas services.

Given the stress facing Australian households, both mortgaged and renters, as well as many small and medium sized businesses, we feel it is unlikely the RBA will move the cash rate higher from here.

The likely scenario is for the RBA to maintain a cash rate of 4.35% until early 2025 to keep pressure on prices and only moving to cut the cash rate “once the impact of lower migration levels begin to impact services inflation”.

What was expected, and when will rates move?

The decision to hold the cash rate was widely anticipated by economists, with the RBA being expected to maintain the same stance on future rate movements as heard by RBA governor Michele Bullock following the May decision.

In the day’s leading up to the decision, Westpac senior economist Matthew Hassan said that recent data would “provide some comfort” that restrictive policy is working to bring inflation to target, however, the path is “still uncertain”.

Gareth Aird, the Commonwealth Bank of Australia’s (CBA) head of Australian economics, said holding the cash rate would “be a straightforward decision” and that the recent run of economic data has been ”largely in line” with the central bank’s forecasts.

While the beginning of the easing cycle is still expected by Westpac, CBA and NAB towards the end of 2024, ANZ announced it has pushed back its rate cut forecast to February 2025 prior to the June decision.

ANZ’s head of Australian economics, Adam Boyton, explained that while monetary policy is working as intended, the appropriate balance between the level of supply and demand is “likely to take a little longer than expected”.

There is a good chance that we get through this next 12 months with a 4.35% cash rate, but it’s not the central (most likely) pathway.