RBA February rate cut highly likely, says bank economist

There is a strong possibility of a cash rate cut at the Reserve Bank of Australia’s (RBA) monetary policy meeting later this month, according to Bendigo Bank chief economist David Robertson (pictured above).

“There is obviously a high probability of a rate cut at the RBA’s February 18 meeting,” Robertson said, as he weighed in on key economic factors, including inflation trends, trade tariffs, and broader macroeconomic conditions shaping the decision.

Bendigo Bank has anticipated a rate cut in the first half of 2025 for over a year. The latest inflation data for the fourth quarter, Robertson noted, has reinforced this expectation, shifting market predictions from May to February.

“Core inflation fell to below both our and the RBA’s forecasts in Q4, dropping to 3.2%,” he said. “With underlying inflation running at only 0.5% in the fourth quarter, everything is on track for the RBA target to be met this year.”

He also noted that the RBA’s preferred inflation measure, the trimmed mean, ended 2024 at 2.7%, prompting markets to price in an 80-90% chance of a rate cut this month.

However, he outlined three factors that could complicate the decision: tight labour markets with unemployment still at 4%, increased government spending that has supported demand despite weak business investment, and a weaker Australian dollar, which has hit five-year lows amid renewed US tariffs.

“While further falls in our exchange rate will have some impact on inflation, and appear likely, these three factors help to explain why we continue to only expect a shallow easing cycle ahead,” Robertson said.

Despite these uncertainties, the bank economist expects the RBA to proceed with a rate cut, stressing that February is the favoured timing for the first cut of 2025.

The economist also addressed the potential risks associated with renewed US tariffs, which have so far spared Australia. Although less than 5% of Australian exports go to the US, he noted that indirect effects, particularly through China, could impact the economy.

“In general, tariffs damage the country that imposes them, leaving the US at risk of stagflation as the year progresses,” he said.

Looking ahead, Robertson said Australia’s economy will navigate a complex global landscape in 2025.

“Inflation has moderated and the three cash rate cuts predicted by the end of 2025 will result in a more neutral cash rate of around 3.5%,” he said. “This will see real household disposable income recover steadily.”

He expects this to support private sector demand and provide relief to small businesses, though economic conditions will remain uneven across regions and industries.

Robertson also commented on the property market, noting stability in prices at the start of the year.

“House prices (and rents) were again flat to slightly lower in January,” he said. “This was helpful for inflation, but – like equity markets – is a reminder that asset values in some areas may struggle to beat inflation this year, even with core inflation back below 3%.”

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