Potential Interest Rate Cut in Australia: Analysts Divided

There is a (quite high) degree of wishful thinking doing the rounds in Australia regarding the potential for a February interest rate cut from the Reserve Bank of Australia. The context is that the Bank has held the cash rate at 4.35% for 13 consecutive months.

Reports about the place highlight that while one of Australia’s four major banks are forecasting a February rate cut, two of the others say its possible (but are not projecting a cut in February).

Commonwealth Bank (CBA):

• Base Case for February Cut: Predicts the RBA will lower rates by 25 basis points in February 2025, with further easing of up to 100 basis points over the year, bringing the cash rate to 3.35%.
• Positive Policy Signals: Recent RBA comments and statements support this outlook, though the decision is not yet certain.

NAB and ANZ acknowledge the possibility but fall short of expecting it:

• ANZ:

  • Trimmed mean inflation below the RBA’s forecast increases the chances of a February cut.
  • Labour Market Resilience: A strong labor market remains a key consideration for the RBA’s timing.

• NAB:

  • Inflation Within Target: Improving inflation trends are not a barrier to rate cuts, though the resilient labor market suggests no immediate urgency.
  • Gradual Cuts Expected: The RBA is likely to cut rates in 2025, with the first reduction potentially in February.

And, Westpac are firmly later than February:

• Employment Stability Key: Strong employment conditions and low unemployment are stabilizing factors, preventing immediate cuts.
• Rate Cuts Later in 2025: Predicts good economic growth toward the end of 2025, with potential rate reductions based on evolving conditions.

The May meeting is a popular choice, but market pricing has inched towards April after the CPI data. I’m not expecting a February cut.

This article was written by Eamonn Sheridan at www.forexlive.com.