One of the safest bets on Melbourne Cup Day is that the cash rate will likely stay at its current 4.35% despite the considerable drop in quarterly CPI inflation announced last week.

The Reserve Bank of Australia board is gathered in Sydney on Monday for its second last meeting of 2024 and due to hand down its decision on Tuesday afternoon.

Markets give a 5% chance of the RBA board delivering a 25-basis point cut with the odds narrowing from 20% a month ago. 

Last week, the all-important September quarter inflation data showed CPI inflation dropped to an annual rate of 2.8%, significantly down on the 3.8% in the 12 months to June. 

The steep fall was largely attributed to federal and state government energy rebates which effectively saw electricity prices plunge 17.3% over the quarter.

RBA 'target zone'

Although the 2.8% figure puts CPI inflation within the much-touted RBA target band of 2-3%, the RBA will be more concerned with underlying inflation, a measure that removes one-off or volatile pricing changes.

So-called trimmed mean inflation came in at 3.5%, a drop on the 3.9% figure recorded for the June quarter, but clearly outside the RBA's target zone.

Although the rate is slowing, economists generally agree services inflation is still rising too quickly for the RBA to consider cutting the cash rate this year.

The services measure includes prices for insurances, health, education, and rents. 

RBA governor Michele Bullock has repeatedly said there will be no cut to the cash rate until the board is satisfied inflation is sustainably within its target range.

The RBA's definition of 'sustainably' will now be key to when the next move on the cash rate comes.

No doubt, economists, markets, and pundits will be offering their interpretations over the coming months.

When will the cash rate fall?

This month will mark four years since the cash rate began its current rising cycle in November 2020.

Economists are forecasting there'll be no cut to the cash rate until at least February 2025, although this will also depend on a few other economic factors.

The big four banks are now in agreement the cash rate will fall by 25 basis points in February, although NAB says it will be in the March quarter.

Very few are now expecting a surprise pre-Christmas cut to the cash rate in the board's last meeting of the year on 9-10 December.

The Reserve Bank of Australia's cash rate decision will be handed down at 2:30pm (AEDT) ahead of the barrier dropping for the Melbourne Cup at 3:00pm (AEDT).

Safe to say, the outcome of the former may be a little easier to predict.

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