Key Points

• We now expect the RBA to remain on hold at the February meeting, with the current cash rate of 4.35% now expected to be the peak.
• The RBA is then expected to remain on hold until November, before gradually cutting rates by 125bps by the end of 2025 taking the cash rate to 3.1% by end 2025.
• We had previously expected the RBA to take rates to 4.6% to take some further insurance that inflation would reach the target band over the next two years. However, with the RBA having been reluctant to move higher and the Q4 CPI print providing some breathing room, the data will not push the Board in the same manner as November.
• It is possible underlying inflation will accelerate in Q1 2024 with the impact of rent subsidies dropping out, but there are increasing signs that goods disinflation may occur more rapidly than expected. In the near term this will be a key offset to still strong services inflation.
• Further out, our forecasts for growth and the labour market are consistent with inflation continuing to ease with growth remaining below trend in 2024 and the unemployment rate drifting higher. By late 2024 the RBA’s focus will shift more to the labour market.

For further details, please see the NAB Monetary Policy Update (17 January 2024)