Cash Rate Cuts to follow Soon? ABS data reveals Key Insights

Latest ABS data has stoked the chatter on one of the most speculated topics of the year: Will RBA implement cash rate cuts any time soon? Latest all groups Inflation data has dropped to the levels of 2.8% which is now within the targeted range set in the statement of monetary policy (SoMP) RBA between 2 – 3%. 

Let’s break this down:

High Level – Key Economic Factors that Impact Cash Rate

RBA Considers Multiple Key Economic Indicators before implementing any changes in its prevailing policies, Some of the high level indicators are:

• Unemployment Rate (Labor Market Dynamics)
• Productivity Growth
• Inflation including Services Sector Inflation

While the Labour market showed considerable resilience productivity remained mostly flat while the household savings ratio decreased to 2.5% from 3.8% in 2022 – 23 (*Source ABS, Australian System of National Accounts)

Simultaneously service sector inflation climbed up to 4.6% from 4.5%, This would also essentially mean that although the headline inflation is tracking within the targets set by RBA, the underlying inflation is still sticking and is staying resilient, forcing RBA to keep cash rates on hold.

This is further reinforced by the trimmed mean CPI stays above the 3% mark per the market median forecast and is more relevant to policymakers than headline inflation.

Economists also suggest that headline inflation tracked RBA’s targets owing to the government support and that once this is taken back inflation would climb back up.

The Commonwealth rent assistance program has been instrumental in controlling Rental inflation, and once this is withdrawn, rental inflation will climb back up.

All these high-level indicators point to the fact that the central bank will continue to hold its rates at least until Feb’25 and only after that will review any possibilities of cash rate cuts, With the upcoming Holiday Season on the horizon people would be spending more & thus RBA would want to abstain itself from cutting the cash rates too early.

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