The Reserve Bank of Australia (RBA) announced on November 5 that it will keep the cash rate target unchanged at 4.35%, marking the eighth consecutive month without a rate change and maintaining rates at a 13-year high.

The statement noted that while inflation has been gradually receding from its 2022 peak, with the annual inflation rate for the September quarter falling within the RBA’s target range of 2–3%, the central bank remains vigilant about potential upward risks to inflation. According to the RBA’s latest forecast, inflation is expected to return to the target range by the end of 2025 and align closer to the midpoint by 2026.

The restrictive monetary policy has led to a decline in economic activity over the past year; however, the labor market remains resilient, with unemployment still near a historic low of 4.1%. The RBA expects consumer spending to pick up in the latter half of the year, though slower-than-expected growth in this area could further dampen economic expansion and potentially strain the labor market.

Additionally, the RBA highlighted uncertainties in the global outlook, particularly with respect to geopolitical risks. If the protectionist Trump camp were to win the upcoming U.S. presidential election, it may impose high tariffs on China’s imports. Given that China is Australia’s largest trading partner, this could have a significant knock-on effect on Australia’s economic growth prospects.

While most Western economies have already entered a rate-cutting cycle to support or reinvigorate economic growth, the RBA has shown a strong commitment to waiting until inflation visibly recedes. This resolve has prompted the market to push back expectations for the RBA’s first rate cut from February to May.

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• Statement by the Reserve Bank Board: Monetary Policy Decision

The Bank of Canada announced a 50 basis point rate cut to 3.75% on October 23, in line with market expectations, marking the largest rate reduction since the onset of the COVID-19 pandemic in March 2020.

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Bank of Canada Governor Tiff Macklem stated that price pressures are no longer broad-based, and the central bank’s focus is now on maintaining stability. While consumer and business investment spending has picked up, overall economic activity remains weak. Though this may help ease price pressures, with inflation now within the target range, the bank is keen to see stronger economic growth moving forward.

Tiff  Macklem further noted that if the economy performs as expected, the Bank of Canada will continue to lower rates to keep inflation on target and support demand. However, the timing and pace of future rate cuts will depend on incomming information, and adjustments will be made incrementally.

Looking ahead, the central bank forecasts that economic growth will gradually recover to around 2% by 2025, with further growth to approximately 2.5% in 2026. This is primarily driven by stronger consumer and business investment in a lower interest rate environment. The Bank of Canada also expects residential investment to rebound as housing demand increases, while exports should rise on the back of robust U.S. demand.

On inflation, the central bank anticipates some fluctuations in the coming months but expects it to remain within the target range as upward pressures on housing and service prices ease. However, if consumer and business spending grows more slowly than expected, inflation may still face some downside risks.

(Source: Bank of Canada, TrendForce)

The Bank of Canada (BoC) announced a 25 basis point rate cut on September 4, in line with market expectations, marking the BoC’s third consecutive rate cut since June. The BoC noted that CPI growth across its components has returned to historical range, with core inflation  nearing the target range. Although housing and service inflation remains elevated, it has begun to slow down, and there are currently few signs of significant inflationary pressure in Canada.

The BoC is now placing greater emphasis on signs of economic weakness. Recent data indicate that economic growth is slowing, and the unemployment rate has risen due to an increase in labor supply and a slowdown in hiring, which is easing inflationary pressures and introducing downside risks to inflation.

When asked about the pace of future rate cuts, BoC Governor Tiff Macklem stated that if inflationary pressure exceeds expectations, the central bank will maintain its current pace of rate cuts (25 basis points). However, if the economic condition worsens and inflation falls more rapidly, the BoC may accelerate the pace of rate cuts (50 basis points).

According to a report by Reuters, some economists predict that economic weakness could prompt the BoC to implement a 50 basis point rate cut in October or December.

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The Reserve Bank of Australia (RBA) announced on August 6 that the cash rate target would remain unchanged at 4.35%, marking six consecutive months without adjustment. RBA Governor Michele Bullock stated that although inflation has eased from its 2022 peak, it remains above the 2-3% target range. The latest data shows that the quarterly core CPI for June stood at 3.9%, aligning with the RBA’s forecasts but marking the 11th consecutive quarter where inflation has exceeded the midpoint of the target range (2.5%).

Regarding the domestic economy, the RBA highlighted significant uncertainties. While the labor market has shown signs of slowing, both the labor force participation rate and unit labor costs remain elevated, posing a risk of a slow decline in inflation. The RBA currently forecasts that inflation will return to the target range by the second half of 2025, with the midpoint likely being reached in 2026.

Additionally, slow GDP growth, rising unemployment, and increasing pressures on businesses all point to a weakening of economic activities. This could result in household spending growing slower than expected, further contributing to prolonged low output and potential deterioration in the labor market.

As for the global economic outlook, while the softening of China’s economic prospects has already impacted commodity prices, geopolitical risks and the continued depreciation of the Australian dollar could negatively affect supply chains, thereby increasing inflationary pressures.

Given these uncertainties, the RBA emphasized that its primary objective remains to stabilize inflation within the target range. The central bank will continue to adjust its interest rate policies as necessary, based on economic data and risk assessments, to ensure the achievement of stable inflation and a robust labor market.

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(Photo Credit: Reserve Bank of Australia)