Several factors trigger formal change in its cash rate view
ANZ has revised its forecast for the Reserve Bank of Australia’s (RBA) first cash rate cut in this cycle, now predicting it will occur in February 2025.
Initially, the bank expected the rate cut to happen in November 2024, but recent developments have led to this adjustment.
Firstly, the Q1 national accounts showed stronger-than-expected household consumption. In addition, labour market performance over the past decade, excluding the pandemic, suggests that the trend growth in the economy could be as low as 2%. This implies that a steady unemployment rate would require only 2% GDP growth.
Furthermore, government consumption continues to contribute to GDP growth and supports employment, particularly with significant job growth in health care and social assistance.
The stronger-than-expected Q1 CPI also suggests that the RBA may not be confident that inflation will return to its target range by the November meeting.
Despite the clear slowdown in the economy, particularly in private final demand, ANZ believes that the monetary policy is working. However, balancing demand and supply levels is expected to take longer than initially anticipated due to the aforementioned factors.
“Accordingly, we now expect the first cash rate cut in February 2025 (from November 2024),” said Adam Boyton (pictured), ANZ head of Australian economics. “We expect a follow-up easing shortly thereafter (most likely in April, although May is possible).
“We are retaining three cuts in our forecasts but see the final cut being delayed until the final quarter of 2025. That is, three 25bp rate cuts, 75bp of easing in total. We see risks around the start of the easing cycle as balanced. Risks around the quantum of easing are skewed to two cuts (50bp in total) being more likely than four (100bp).”
Last month, the Commonwealth Bank of Australia revised its own forecast, pushing its first cash rate cut prediction to November 2024, aligning with those from fellow big banks NAB and Westpac.
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