Not everyone’s convinced rate cuts are finished for the year.
After the Reserve Bank of Australia (RBA) decided to hold the official cash rate (OCR) in September at 3.60%, much of the market concluded that interest rate reductions were done for 2025. But some economists remain unconvinced that the easing cycle is over.
Among the skeptics is Hobart-based economist Saul Eslake, who expects the central bank to deliver another rate cut at its November monetary policy meeting.
"I'd certainly say there will be a rate cut with well over 50% confidence," Eslake told Australian Broker.
Eslake anticipates four rate cuts in 2025, with three having already landed: in February, May and August.
"Some economists change their views more often than I personally think is warranted. I mean, the markets are continually calibrating the probabilities," he added.
In September, RBA Governor Michele Bullock said the central bank's decision to hold rates was based on its wait-and-see approach, signaling that any further monetary policy decisions will depend on upcoming economic data. This means inflation and employment will need to be within manageable levels, including the RBA target inflation range of 2% to 3%, before further monetary easing.
"I'm not going to predict what the interest rate is going to be in the next three to six months," Bullock told reporters after the bank's September decision to hold. "What we're focusing on [in the future] is an interest rate path that will deliver us inflation sustained with the band. That could mean a couple more reductions. It might not. I don't know at this point. And we'll look at all this again in November."
The June quarterly consumer price index (CPI) confirmed that inflation is trending downward. Both headline CPI and trimmed mean inflation declined over the quarter, with annual CPI easing to 2.1%, down from 2.4% in the previous period, while trimmed mean inflation dipped to 2.7%, compared with 2.9% in the prior quarter.
In September, Bullock also hinted that stronger-than-expected consumer spending could add to inflationary pressures and delay further interest rate cuts.
The Australian Bureau of Statistics (ABS) will release the September quarterly CPI next Wednesday, 29 October.
"That will be crucial in the Reserve Bank's own thinking, as well as the financial markets thinking about what the Reserve Bank might be thinking," Eslake said.
Meanwhile, unemployment has risen slightly. In seasonally-adjusted terms, the nation's unemployment rate rose to 4.5% in September, up from 4.2% in August, where it had held steady for the last two months, according to the ABS. It's also the highest level of unemployment in four years.
"That's fairly clear evidence that the labour market is slowing," Eslake said.
Belinda Allen, head of Australian Economics at CBA, admitted that the most recent jobs report "complicates the story," but said, "there has been tension in the recent data flow for the RBA between activity, inflation and employment. Until the tension between inflation and labour market is resolved, we expect the RBA to remain cautious and watchful of the data flow.
"Our base case remains that the last cut to the cash rate from the Reserve Bank of Australia will come in February," she added.
The RBA meets for its next meeting on monetary policy 3 to 4 November.
