Goldman Sachs holds firm on February rate cut prediction after RBA minutes
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More news: Following the Reserve Bank's release of its December monetary policy meeting minutes, Goldman Sachs analysts have doubled down on their expectation for the first cut to interest rates to be delivered in February.
In a note circulated about an hour after the minutes were released, analysts Andrew Boak, William Nixon and Oscar To said the information confirmed the RBA had adopted an "explicit easing bias for the first time this cycle" in its forward guidance.
Specifically, the RBA added that it would "in due course, be appropriate to begin relaxing the degree of monetary policy tightness" should the data be in line with expectations or come in weaker. And it removed a reference that it "was not possible to rule anything in or out in relation to future changes in the cash rate target". It also removed the reference to needing to "observe more than one good quarterly inflation outcome".
What they said: "We continue to expect the RBA to commence a gradual easing cycle in February, conditional on a soft outcome in the trimmed-mean CPI in [the fourth quarter of 2024]," the analysts said in a note.
RBA board alert to downside risks in the economy
The news: The Reserve Bank of Australia's December board meeting minutes have been released, showing the monetary policy decision-makers continue to remain data dependent but are alert to downside risks in the economy.
The board pointed to recent economic growth figures showing a weaker than expected September period are among the signals that demand is cooling in the economy relative to supply.
But the board did note that some factors left them with uncertainty. This included some labour market and retail sales figures indicating resilience in economic activity, and uncertainties over the level of policy restrictiveness with some measures of financial conditions loosening.
There was also a question mark over whether the recent pick-up in retail spending would be sustained or if it represents a "pull forward" due to Black Friday and Christmas sales.
The board pointed to additional data being available ahead of the next meeting in February, including updated figures on the labour market, inflation and expenditure. The RBA will also publish a new set of forecasts.
The context: The Reserve Bank kept interest rates on hold at 4.35% when it met in December. However, the statement released alongside the decision and governor Michele Bullock's post-announcement press conference were much more dovish. This had some economists thinking the central bank may be more willing to cut rates in February.
However, after the decision was made labour force figures were released showing a much more resilient jobs market than expected by commentators. This cast new doubt on the likelihood of a rate cut in the first few months of 2025 and increased the importance of the tone struck by today's meeting minutes.
What they said: "Members noted the [RBA] staff’s assessment that there was still excess demand in the Australian economy. This judgement was, however, becoming less clear as the estimated gap between aggregate supply and aggregate demand narrows. Measures of capacity utilisation from business surveys supported the assessment that there was still excess demand in the economy overall. On the other hand, members observed that trends in wages growth could be a signal that there was more capacity in the labour market than had been assumed," the board said in the minutes.
"Members noted that employment growth had been driven by the non-market sector over preceding quarters. By contrast, growth in employment in the market sector had remained subdued, and survey and liaison measures of employment intentions – which mainly capture the market sector – had eased further," the board said, adding that the composition of employment growth didn't affect economic welfare or assessments of full employment but could affect the growth in future should the non-market sector slow more than expected."
"Relative to [current forecasts of the] central path, 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. A consideration underpinning this judgement was reduced momentum in GDP growth over the year to the September quarter."
The source: Reserve Bank meeting minutes
