He maintains that the RBA will only start cutting rates early next year
Australian households should not anticipate a rate cut in 2024, despite latest GDP data indicating a slowing economy, Bendigo Bank’s chief economist, David Robertson (pictured above), has cautioned.
“For the RBA to cut rates, they will need to be convinced high inflation is fully contained; and the latest monthly CPI figures unfortunately don’t help that perception,” Robertson said in Bendigo Bank’s June Economic Update. “With both headline CPI and core inflation rising marginally in the April data, this uptick, together with the uncertainty of the impact of state and federal budgets, adds to a ‘rates on hold’ outlook.”
He also noted the ambiguity regarding how much of the upcoming tax cuts will be saved versus spent, suggesting this is not consistent with further RBA hikes.
“Our long-held view the RBA will start cutting rates early next year remains unchanged,” Robertson said.
He highlighted that other advanced economies are also experiencing stubborn inflation, delaying easing cycles. The US is on hold until September at the earliest, while both the Bank of Canada and the European Central Bank recently cut rates, indicating that tightening cycles are generally concluding, even if easing cycles are delayed.
On the growth front, real GDP rose by only 0.1% in Q1, and annual growth slowed to 1.1%, the lowest year-on-year pace since 2020. GDP per capita remained negative for the fifth consecutive quarter.
“Growth isn’t expected to rebound in the second quarter, but from July, the government’s stage three tax cuts will start to support household incomes, and by the end of 2024, inflation should be closer to 3%, a level we haven’t seen since 2021, which will be less of a drag on the economy,” Robertson said.
He also pointed to the labour market and housing trends as significant considerations for interest rates in Australia as the RBA’s dual mandate involves managing inflation while preserving jobs. The recent Federal Budget’s commitment to building 1.2 million homes by 2029, he noted, highlights ongoing housing supply challenges.
House prices continue to reflect demand exceeding supply, with a 0.8% increase in dwelling prices in May and significant rises in Perth and Adelaide over the last three months.
“How quickly supply can be added to deal with housing affordability will have consequences for inflation, but it’s an uneven experience at present with listings in Victoria and Tasmania sharply higher in contrast to other states and territories,” Robertson said.
“Lastly, the Aussie dollar peaked around 67 cents last week but was unable to break higher so remains in its recent range, but volatility across the markets appears to be building.”
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