09:03 AM EDT, 08/07/2024 (MT Newswires) -- At the policy meeting this week, the Reserve Bank of Australia (RBA) decided to leave the cash rate unchanged at 4.35%, as most people had anticipated, said Societe Generale.

The bank thinks that the policy statement has become a bit more hawkish than the previous meeting. The statement described the persistency of the recent trimmed mean inflation data in earnest, saying "In year-ended terms underlying inflation has now been above the midpoint of the target for 11 consecutive quarters, and quarterly underlying inflation has fallen very little over the past year."

It also gave a detailed explanation of the slight upward revision in trimmed mean inflation, saying "(it was) based on estimates that the gap between aggregate demand and supply in the economy is larger than previously thought."

In the concluding part, the statement added: "longer-term inflation expectations have been consistent with the inflation target , and policy will need to be sufficiently restrictive (until the Board is confident that inflation is moving sustainably towards the target range)."

In the press conference, Governor Michele Bullock gave a few more hawkish comments, including "a rate hike was discussed at today's meeting (the same as the last meeting)," and "policy rate cuts are off the table for this year (i.e., the RBA does not support the market's pricing of a December cut)."

An effective ruling out of a rate cut in the next six months supports SocGen's base scenario of the first rate cut in early 2025.

The RBA's Statement on Monetary Policy released also this week "significantly" raises gross domestic product (GDP) growth forecasts in 2025: Q2 forecast is revised up from 2.1% to 2.5% and Q4 forecast is up from 2.3% to 2.5%. Consumption and dwelling investment forecasts are revised down, while the RBA gets more bullish on business investment, public demand (probably reflecting the fiscal easing in the federal budget) and exports (despite the lingering concerns on China's slowdown).

The RBA expects slightly stronger employment growth and a tad higher unemployment rate (probably thanks to immigration), marginally higher wage growth and a considerable rise in productivity growth (due to GDP upgrades).

"Interestingly," the RBA introduces a sizeable tweak in headline inflation forecasts: Q4 2024 forecast is down from 3.8% to 3.0%, Q2 2025 forecast is down from 3.2% to 2.8%, Q4 2025 forecast is up from 2.8% to 3.7% and Q2 2025 forecast is up from 2.6% to 3.2%. This forecast revision reflects the likely changes in the government's cost-of-living measures such as electricity rebates and rent assistance.

Last, but not least, the RBA assumes a lower path of its own policy rates (from 4.2% and 3.9% to 4.0% and 3.6% for 2025, from 3.8% to 3.3% in Q2 2026), which now only reflects the financial market pricing (as such no longer contains the economists' survey), though the bank doesn't think that this assumption gives a meaningful impact on the official macroeconomic forecasts.