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Highlights
- - RBA board acknowledges economic growth slowing more than anticipated.
- - Labour market and retail sales data show mixed signals of resilience.
- - Key data on labour, inflation, and expenditure to shape February decisions.
The Reserve Bank of Australia (RBA) released the minutes from its December board meeting, shedding light on the economic challenges and uncertainties shaping its decisions. The board emphasized being data-driven, closely monitoring signs of cooling demand in the economy while remaining cautious about downside risks.
Recent economic growth figures highlighted weaker-than-expected performance in the September period. This slowdown suggests demand is easing relative to supply, though uncertainties persist. Some metrics, including labour market data and retail sales figures, indicate ongoing resilience, raising questions about the depth of the slowdown. Notably, the board flagged the recent retail spending uptick as potentially temporary, spurred by Black Friday and Christmas sales rather than sustained consumer momentum.
Labour force trends also caught the RBA’s attention. The minutes revealed employment growth has been primarily driven by the non-market sector, while market sector employment remained subdued. Business surveys and liaison measures further supported this trend, showing eased employment intentions in the market sector. While these shifts don’t directly affect economic welfare or full employment assessments, they could impact future growth if the non-market sector faces unexpected slowdowns.
The board maintained its focus on inflation, noting diminishing risks of prolonged inflationary pressure. The gap between aggregate supply and demand appears to be narrowing, signaling that capacity constraints may ease. Wages growth trends were also reviewed, with members suggesting potential for greater labour market capacity than previously assumed.
Monetary policy remains a critical tool, with the RBA keeping interest rates steady at 4.35% in December. However, the dovish tone in Governor Michele Bullock's post-meeting comments and the accompanying statement hinted at a cautious approach, sparking speculation about future rate adjustments. Following the decision, resilient labour force data tempered expectations of a near-term rate cut, making February’s meeting crucial.
Upcoming data releases on labour market conditions, inflation, and expenditure will provide essential insights for the RBA as it prepares updated forecasts. These factors, alongside international economic developments, are expected to shape the central bank's strategy heading into 2025.
The RBA’s measured approach underscores its commitment to balancing economic stability while navigating uncertainty in demand, inflation, and employment. With global and domestic factors in flux, the central bank's vigilance remains vital in steering Australia’s economic trajectory.
