The Reserve Bank (RBA) is set to keep the cash rate steady at 3.6% in September, according to Westpac Group chief economist Luci Ellis (pictured).
“Anyone who thought there was a lingering chance of a cut next week will have ruled it out following this week’s August partial inflation data,” Ellis said.
Westpac’s base case remains a 25bp cut in November, though Ellis noted the timing was “now less certain.”
Fresh ABS data underscored the cautious stance. Headline CPI rose 3% in the year to August, while trimmed mean inflation eased to 2.6%. ANZ and CBA economists said firm housing costs support holding rates in September, with November the more likely window. “The key takeaway from today’s data is that a November cut is not a done deal,” said CBA economist Harry Ottley.
Ellis cautioned against reading too much into the recent inflation print.
“Having made the mistake three months ago of over-weighting the implications of the monthly inflation data for the RBA’s decision-making, we think it is prudent to avoid taking too much signal from the August partial inflation data about trends beyond the September quarter,” she said.
While some upside surprises were seen in categories like clothing and hospitality, Ellis said these reflected temporary effects such as job recovery and margin rebuilding rather than entrenched inflation.
On the global front, Ellis said China remains a source of disinflation, while any lift in energy prices from Russia’s oil supply disruptions is expected to be limited.
Domestically, the key concern lies in homebuilding costs. “We cannot rule out that the underlying trend growth in building costs is higher than the rates seen late last year before the period of discounting,” Ellis said.
Westpac’s forecasts continue to see trimmed mean inflation comfortably inside RBA’s 2–3% target band into 2025, drifting below the midpoint next year.
Ellis also highlighted a gradual softening in the labour market.
“Employment growth has slowed more than expected, and this week’s ABS job vacancies data confirm that the past tightness in the labour market is still unwinding,” she said.
Westpac still expects GDP growth of 1.9% in 2025, up from 1.3% in 2024 but below trend. Westpac’s Matthew Hassan added that Australia’s recovery “continues to be a stop-start affair,” with consumer spending gains proving temporary.
With inflation contained and growth softening, Ellis said the policy stance need not stay tight.
“We do not think this combination warrants tight monetary policy. At a 3.6% cash rate, monetary policy is probably not that tight, but some reduction would still be needed to avoid a needless undershoot of the inflation target,” she said.
Westpac continues to forecast 25bp cuts in November, February, and May, though Ellis acknowledged the timing could shift.
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