Tight labour market could spoil the party, but mean inflation trending in right direction
The Reserve Bank of Australia (RBA) will cut the cash rate by 25 basis points at its February meeting and once again in August, predict ANZ analysts.
In a Friday research note, the bank highlighted November’s weaker-than-expected inflation print and downgraded fourth-quarter mean inflation expectations as key factors.
ANZ expects mean inflation to print at just 0.5% sequentially in the fourth quarter of 2024, which would be the lowest quarterly results since early 2021.
“We think this will be enough for the RBA to cut the cash rate by 25bp at its February meeting, rather than waiting until May,” said ANZ analysts.
However, “a hold in February is not off the table if the RBA puts more weight on its concerns that the persistent tightness in the labour market still poses upside risks to inflation”, they added.
With only two rate cuts anticipated for the year, ANZ’s prediction points to a shallow cycle, reinforced by a resilient labour market.
“We think the RBA will be cautious in dialling down the restrictiveness of current policy settings, rather than February being the start of an aggressive easing cycle, especially given the uncertainty over the level of current restrictiveness,” said the bank.
The RBA held the cash rate at 4.35% at its final meeting in 2024, therefore keeping borrowing costs unchanged since November 2023.
The next rate decision is scheduled for Friday, 18 February.
