The Reserve Bank (RBA) has reaffirmed its cautious approach to monetary policy, emphasising the need for sustained disinflation before adjusting rates.
The November meeting minutes underscored the board’s view that “more than one good quarterly inflation outcome” is necessary to ensure inflation is on a sustainable downward path.
“The RBA has expressed a greater degree of comfort with this adjusted market outlook, given the known risks at present,” said Westpac analysts Ryan Wells, Elliot Clarke, and Illiana Jain (pictured from left to right).
Westpac chief economist Luci Ellis noted the RBA’s policy assumptions now account for reduced quantum of easing and a later start to cuts.
Westpac has updated its outlook, moving the expected start of the cutting cycle from February to May, while maintaining a terminal rate forecast of 3.35% by the December quarter.
Consumer spending and labour market tightness remain key uncertainties, with the October inflation gauge set to provide further clarity.
In the UK, inflation rose to 2.3% annually in October as energy price rebates from 2023 cycled out. Core inflation inched up to 3.3%, driven by sticky services inflation at 5%.
The Bank of England faces ongoing challenges in managing inflation, with projections indicating that inflation will exceed its 2% target for 2024.
The cautious tone from BoE reflects uncertainties, as further back-to-back rate cuts may not be feasible if inflation remains persistent.
In Japan, inflation trends are mixed, leaving the Bank of Japan (BoJ) uncertain about further rate hikes. Core inflation excluding fresh food stood at 2.3% annually in October, slightly above expectations but below earlier months.
Governor Kazuo Ueda hinted that December’s policy meeting would hinge on incoming data.
Union demands for a 5% wage increase in FY25 will further influence BoJ’s decision-making. Persistent inflation and government support for wage growth may provide the momentum needed for BoJ to act.
To read the Westpac insights in full, click here.
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From Australia’s cautious 
