RBA held its cash rate steady at 4.35% as widely expected, but the accompanying statement marked a clear pivot towards a more dovish stance. While May remains the more likely timing for the first rate cut, February is now emerging as a real possibility, depending on upcoming Q4 jobs and inflation data from Australia.
The most striking change in the RBA’s statement was its removal of the phrase “not ruling anything in or out” regarding future monetary policy decisions. This change aligns with the board’s growing “confidence that inflationary pressures are declining.” RBA acknowledged that some upside risks to inflation have eased and noted the gap between aggregate demand and supply capacity is continuing to narrow.
Recent activity data, according to the RBA, has been “on balance softer than expected,” with the central bank pointing out risks of a slower-than-anticipated recovery in consumer spending. These factors collectively suggest a step away from inflation vigilance and a move closer to easing policy.
Governor Michele Bullock later emphasized that the wording adjustments in the statement were deliberate. While she clarified that a rate cut was not discussed during today’s meeting, she acknowledged uncertainty over whether one could occur as early as February.
Markets responded swiftly, with swaps traders raising the probability of a February rate cut to over 60%, up from 50% the previous day. Market expectations now fully price in two rate reductions by May.
