Australia: November RBA Council Review

■ The Reserve Bank of Australia (RBA) decided to keep the policy rate steady at its November meeting, but the overall policy stance will stay the same.  

■ While remaining alert about high inflation in the short term, financial markets have lowered their expectations for further rate cuts in the first half of next year. 

 
   The Reserve Bank of Australia (RBA) held its board meeting on November 3-4, keeping the policy rate at 3.60%, as expected by the market. The main focus of this meeting was assessing the current price and employment situation and determining the monetary policy stance for the upcoming year. The quarterly Statement on Monetary Policy (SMP) released simultaneously indicated that, based on forecasts for the economy, prices, and employment, the RBA considers at least one rate cut in 2026, suggesting that the current policy stance will continue. 
 
   The statement noted that regarding inflation, "the rise in core inflation during July-September was partly due to temporary factors." The RBA believes the recent increase in inflation is mainly driven by "temporary factors" such as the removal of electricity price subsidies in several states. However, in the SMP, the RBA increased its inflation forecast, expecting the Consumer Price Index (CPI)—which it monitors—to stay above 3% by mid-next year, with overall inflation remaining above 3% through the end of 2024. This indicates that prices will stay above the RBA's target range of 2-3%. In this context, the RBA noted that supply pressures within the economy are intensifying. On employment, the statement maintained the stance from the September meeting, noting that "the labor market continues to show some tightness." Although the unemployment rate forecast was raised from 4.3%, it is expected to stay stable at 4.4%. The RBA emphasized that layoffs remain low and that leading indicators like job advertisements continue to show strong demand for labor. 

   Regarding the economy, the RBA slightly downgraded its growth forecast for next year to 1.9%, but the change was minor. Therefore, while still cautious about cutting interest rates too soon because of high inflation concerns, the RBA appears to prioritize watching Australia’s economic trends, especially given the relatively solid short-term economic performance. As a result, financial markets have tempered their expectations for further rate cuts in the first half of next year. 
 
   However, the outlook for the economy, inflation, and employment remains highly uncertain, particularly concerning employment. In the minutes of the August Council meeting, some members suggested that a further slowdown in the labor market might justify a quicker interest rate cut. If unemployment continues to rise, markets might increase their expectations for an Australian rate reduction. The discussion of downside risks to employment is expected to be a major focus in the upcoming November Council meeting minutes, scheduled for release on November 18th.