Bank economist shares insight
Despite ongoing financial market volatility, a bank economist has aligned with the majority of expert forecasts, suggesting that Australian borrowers might experience interest rate relief in 2025.
In the recently released Bendigo Bank August Economic Update, David Robertson (pictured), the bank’s chief economist, said he anticipates that the Reserve Bank of Australia (RBA) will be positioned to reduce rates next year, likely around six to nine months after other major central banks, such as those in Canada, the United States, and New Zealand.
The timing of potential rate cuts will depend on core inflation nearing the 3% target, a milestone Robertson expects to be reached in early 2025. Despite the ongoing strain on households due to persistent inflation, he projects an improvement in real disposable income next year.
“There have been sudden swings in opinions around RBA monetary policy of late, with the market briefly pricing in another rate hike until the quarterly CPI data landed on the low side, with core inflation dipping below 4%,” Robertson said. “Equally, the subsequent renewed calls for an RBA cut this year appeared to be another market overreaction.”
He commended RBA governor Michele Bullock for pushing back against the notion of a rate cut in 2023, emphasising the need to fully contain inflation to ensure sustainable economic and wage growth.
Robertson reiterated his forecast that the RBA would likely cut rates by May 2025, assuming inflation trends favourably. However, he warned of potential scenarios that could disrupt this outlook, such as a resurgence in economic demand driven by recent tax cuts or fiscal support, which could necessitate another rate hike. He stressed that upcoming employment data would be critical in assessing the RBA’s next moves, particularly in comparison to other central banks.
“While our labour markets have been more resilient than elsewhere, any fall in our jobless rate from here would add to the risk of another RBA hike,” Robertson said. “To put minds at ease, we don’t expect this to occur, and any move prior to November and the next quarterly inflation data is highly unlikely.”
He added that a sudden rise in unemployment or significant global market disruption could accelerate the case for an RBA rate cut. He highlighted the recent volatility in global financial markets, particularly the sharp selloff in equities, which he described as a correction rather than a bubble.
“Markets appear very prone to overreactions at present, which is understandable given the extent of recent bull markets for equities and the assumption that conditions will remain benign, so a correction at best was somewhat inevitable,” Robertson stated.
“How this plays out now is anyone’s guess, with the VIX index of volatility spiking to its highest level this century outside the pandemic and GFC, but the implications for US interest rates are clear: the Federal Reserve will cut rates in September, although calls for a 50-basis point cut also appear to be an overreaction.”
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
