Reserve Bank of Australia Considering Monetary Policy Loosening

The Reserve Bank of Australia (RBA) is contemplating easing monetary policy as it slowly progresses in reducing inflation, according to the minutes from its December meeting.

During the December 9-10 meeting, the RBA held its benchmark cash rate steady at 4.35% and provided limited guidance on potential interest rate cuts.

While inflation has eased in recent months, it remains above the RBA's target range of 2% to 3%, with expectations that it won't fall within this range until at least 2026.

The minutes indicated that policymakers believe the risks of inflation returning to target slowly have reduced, primarily due to weak GDP growth and slowed private consumption resulting from declining wage growth.

Conversely, robust spending during the Black Friday sales and a resilient labor market contribute to policymakers' caution regarding inflation, especially amidst persistent inflationary pressures internationally.

The RBA acknowledged that if inflation aligns more closely with their objectives, it might be "appropriate to begin relaxing the degree of monetary policy tightness." This marks the first time the RBA has entertained the notion of easing since the current rate hike cycle began.

However, until the RBA gains more confidence in this easing, it signaled that interest rates will remain unchanged. Analysts predict rate cuts in a gradual easing cycle starting in the second quarter of 2025.