Hopes for some interest rate relief in 2025 seem to be wobbling if the latest Reserve Bank minutes are anything to go by.
Inflation Remains the RBA’s Top Concern
The number one enemy still worrying the RBA is its ongoing battle against inflation. Their latest minutes paint a sobering picture for 2025.
“Underlying inflation — as indicated by the ‘trimmed mean’ measure — remained too high and … forecasts did not see inflation returning sustainably to target until 2026,” the minutes said.
Consumer Spending and Confidence: A Double-Edged Sword
The central bank minutes outlined consumer spending, productivity, and the global economy as the drivers they are looking at in future interest rate deliberations.
“If consumption proves to be persistently and materially weaker than the staff forecast … a reduction in the cash rate target could be warranted,” the RBA said.
Interestingly, consumer confidence surveys are showing increased optimism. This week’s ANZ-Roy Morgan consumer confidence survey revealed a rise in confidence in the 12-month economic outlook by 10.7 points since early July, with personal finance confidence gaining 8.2 points in the same period.
However, increased consumer confidence may lead to more spending, which keeps inflation high — counteracting hopes for interest rate cuts.
Global Economic Uncertainty and Its Impact on Australia
When it comes to the global economy, the RBA notes uncertainty stemming from recent geopolitical events, including Donald Trump’s US election win.
The RBA minutes highlighted risks from potential changes in US economic policy and how other countries might respond.
Last week, RBA Governor Michele Bullock spoke about the possible impact of high US tariffs on China.
“In the very extreme circumstances of 60 per cent tariffs on Chinese goods, we don’t know how the Chinese will respond to that,” Ms. Bullock said.
“Ultimately, if it’s not good for the Chinese economy, it isn’t good for us either.”
Labour Productivity and Its Role in Inflation
The Reserve Bank is also focused on labour productivity, noting in their minutes that “persistent weakness in productivity growth could also boost inflation over the forecast period if wages growth did not adjust.”
