Interest rate idealists ‘setting themselves up for disappointment’
Bendigo Bank has thrown cold water on Australia’s hopes for a cash rate cut this year.
The non-major bank has stated that the latest inflation and job data has “all but confirm[ed] 4.35 per cent is here to stay until 2025.”
As the country grapples with last week’s cash rate hold and predictions for the upcoming federal budget, Bendigo Bank has warned Australians not to get their hopes up about an interest rate downturn before the year is out.
In contrast to the optimistic outlook that kicked off 2024, commentators have recently warned of a delayed cut or even another rate rise as economic indicators continue to stagnate.
“Markets have been rethinking their timeline for when the easing cycle might start and had even started to partially price in another hike,” said David Robertson, chief economist at Bendigo Bank.
“Our view for over a year has been that Reserve Bank of Australia (RBA) rate cuts will start in 2025 to help the slowing economy, but not in 2024 because of how difficult it is to eradicate inflation,” said Robertson.
“With the market now coming to the same conclusion, the first rate cut is now predicted for early to mid-2025.”
Currently, Australia’s unemployment rate is remaining steadily in the high threes – markedly lower than usual – while core inflation remains “stubborn”.
While these statistics suggest a potential future rate hike, Robertson noted that “much weaker retail sales numbers were a reminder households were doing it tough, and are cutting back on discretionary spending”.
“We’re still expecting very slow economic growth and domestic demand ahead, with the main bright spots coming from international tourists and students, and strong public investment,” said the chief economist.
He noted that while inflation indicators seem to be declining, the core read tells a different story.
“Headline CPI fell to 3.6 per cent in the latest numbers for the first quarter, but the core read was 0.2 per cent higher than hoped at 4 per cent, with rents and services inflation remaining the problem,” Robertson said.
“The latest RBA statement on monetary policy now forecasts core inflation to be still well above target at year-end.”
Despite this, he still asserted that rate cuts are likely to take place in 2025 to bolster the country’s slowing economy.
Overseas, cuts have already started to take place, with Sweden’s central bank cutting rates last week, and the European Central Bank expected to follow in June.
“While the possibility of another hike is always there, and similarly the US are going to start their easing cycle, we still favour no move up or down from the RBA this year,” the chief economist concluded.
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