The Reserve Bank of Australia (RBA) minutes from December meeting suggest a possible interest rate cut in February 2025 due to easing inflation and sluggish economic growth. The RBA board believes inflation pressures are easing faster than anticipated, with wage growth slowing to 3.5%. While the RBA acknowledges the risk of inflation exceeding targets, it has indicated a shift in perspective, potentially opening the door for a rate reduction in the new year.
Slowing wages growth and an economy barely out of first gear have given the Reserve Bank more ammunition to consider an interest rate cut at its first meeting of 2025, providing a timeline for Prime Minister Anthony Albanese to call the federal election . Minutes of the RBA board’s December meeting, at which the official cash rate was kept at 4.35 per cent, reveal a marked change in the bank’s outlook for the economy and inflation that sparked hope of a rate cut in February.
The bank had, for much of the year, said it was difficult to “rule in or rule out” further changes to the cash rate. This term disappeared when the board revealed this month the cash rate had been held steady. The minutes, released on Tuesday, show board members believe inflation pressures may be easing even faster than they had been anticipating.The minutes showed the economy expanding by just 0.8 per cent while wage growth, at 3.5 per cent, had slowed. “Members judged that the risk that inflation returns to target more slowly than forecast had diminished since the previous meeting, and that the downside risks to activity had strengthened,” the minutes showed.“A consideration underpinning this judgement was reduced momentum in GDP growth over the year to the September quarter. “A second consideration was developments in wages growth, which had slowed by more than expected. Members discussed whether this could signal that potential labour supply was more abundant than had been assumed.” The minutes show that while board members believed the chances of higher-than-expected inflation had fallen, it was still “too soon to conclude with full confidence” that inflation was on track to hit the RBA’s 2 to 3 per cent target.A key concern among some economists has been strong jobs growth, with the country adding 400,000 jobs over the past 12 months. November’s unemployment rate, which was released after the RBA’s meeting, fell to 3.9 per cen
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