Rate cuts loom for inflation slayers

Bendigo Bank’s chief economist David Robertson said homeowners won’t see rate cuts until September at the earliest. Picture: BENDIGO BANK

While central banks are gearing up for rate cuts in Europe and the US, closer to home the Reserve Bank of Australia (RBA) is maintaining its tightening bias according to Bendigo Bank chief economist, David Robertson.

In his latest forecast for interest rates, financial markets, and the domestic economy, Mr Robertson predicts Australian homeowners won’t see rate cuts until at least September, but more likely not until 2025.

“Ultimately RBA rate cuts will depend on core inflation returning to or below 3%, and while the latest Monthly Indicator showed CPI down to 3.4%, the core measure was still up at 3.8% in January, which is exactly where we have forecast it will land in the next quarterly numbers out in late April,” Mr Robertson said.

“The RBA’s preferred measure of core inflation, the Trimmed Mean, was 4.2% at the end of 2023 and should continue to ease, but while a fall to 3.8% may see the RBA remove its tightening bias in the May meeting, it won’t be enough for cuts until September at the earliest.”

Mr Robertson said progress being made on the fight against inflation in overseas markets was encouraging.

“Elsewhere progress on inflation is promising with the US Core PCE down to 2.8% year-on-year, suggesting the Federal Reserve will be cutting rates by June, and similarly for the European Central Bank,” he said.

“While other advanced economy central banks are likely to declare the war on inflation has been won, and start to cut rates mid-year, there will be increasing calls for the RBA to do the same.

“However, it’s important to keep in mind that we were around six months behind in the initial tightening cycle, and didn’t hike as aggressively.”