RBA to hold rates through September, deliver first cut in Q4: Reuters poll

By Thomson Reuters Jun 13, 2024 | 7:06 PM

By Anant Chandak and Milounee Purohit

BENGALURU (Reuters) – The Reserve Bank of Australia will hold its key policy rate for a fifth straight meeting on Tuesday over persistent price pressures, according to all economists polled by Reuters, a majority of whom expected the first cut to come in the last quarter of the year.

With inflation remaining above the central bank’s 2%-3% target since late 2021 and the jobless rate easing to 4%, most say an early rate reduction seems unlikely.

The central bank recently noted an interest rate hike might be needed if inflation stayed stubbornly high. That was despite the economy showing signs of a slowdown.

All but one economist in a June 7-13 poll expect the RBA’s next move to be a cut.

The RBA was forecast to keep its official cash rate unchanged at 4.35% at the conclusion of its two-day meeting on June 18, said all 43 economists polled.

A near 90% majority, 38 of 43, predicted interest rates to remain unchanged next quarter, followed by a 25 basis point cut to 4.10% in the final quarter of this year.

“The risk of a rate hike is very low, but the RBA’s response to high inflation data would be to keep current high rates for longer,” said Andrew Ticehurst, senior economist at Nomura.

“Growth is soft, unemployment should rise over coming months and wage growth has likely peaked. As this happens, we think the RBA will become more confident inflation, including services inflation, will slow…(and) will allow a gentle easing cycle to commence around November.”

A 63% majority of economists, 27 of 43, forecast interest rates to fall to 4.10% or lower by year-end. A 35% minority, 15 of 43, expect no change at 4.35%. One expects a hike to 4.85%.

Among major local banks, CBA, NAB, and Westpac predict rates will stay unchanged through the third quarter. All three expected one 25 basis-point cut in the fourth quarter. ANZ predicted the first cut would not come until February.

If median forecasts were realised, the RBA’s policy easing would be in line with the U.S. Federal Reserve’s latest dot-plot projections of a single quarter percentage-point cut this year.

The RBA was expected to follow up next year with 25 basis-point cuts each in Q1 and Q2 and then a pause in Q3, according to median forecasts in the poll. The cash rate was forecast to drop to 3.35% in the last quarter of 2025.

Australia’s economic growth slowed to 0.1% last quarter as higher prices weighed on household spending. A separate Reuters poll showed growth would average 1.4% this year.

“If domestic demand recovers more than expected or labour cost growth remains higher than expected then domestic inflation pressures would remain elevated and the RBA would want to delay cutting rates,” said Ryan Wells at Westpac.

“A particularly uncomfortable scenario for the RBA would be one where domestic demand, and especially consumption, remains soft but supply side issues keep aggregate inflation too high.”

(For other stories from the Reuters global economic poll:)

(Reporting by Anant Chandak and Milounee Purohit; Polling by Susobhan Sarkar; Editing by Hari Kishan, Ross Finley and Hugh Lawson)