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ANZ’s economics team has announced that it now expects the Reserve Bank of Australia (RBA) to cut the cash rate by 25 bps during its upcoming February monetary policy meeting.
According to ANZ, the weaker-than-expected monthly Consumer Price Index (CPI) indicator for November – rising by 2.3 per cent over the 12 months to November 2024 – incited a downgraded forecast for the Q4 trimmed mean inflation forecast to 0.5 per cent quarter on quarter, which would mark the lowest quarterly result since 2Q21.
As a result, this would see annual trimmed mean inflation fall by 0.3 ppt to 3.2 per cent year on year, sitting below the central bank’s current forecast of 3.4 per cent.
“We think this will be enough for the RBA to cut the cash rate by 25bp at its February meeting, rather than waiting until May,” ANZ’s economics team said.
“The RBA Board noted in the December minutes that ‘if the future flow of data continued to evolve in line with, or weaker than, their expectations, it would further increase their confidence that inflation was declining sustainably towards target’.”
A cash rate cut in February is also favoured, according to the ASX Rate Tracker, which showed 78 per cent of the market expecting the cash rate to fall to 4.1 per cent as of 10 January.
However, ANZ’s economics team said that a further hold in February is still a possibility should the RBA put “more weight on its concerns that the persistent tightness in the labour market still poses upside risks to inflation”.
“But the sharper-than-expected slowdown in wage growth in 2024 and weaker inflation forecast for 4Q suggest an unemployment rate at or just below 4 per cent may be consistent with underlying inflation in the band,” it added.
“The change to our 4Q CPI forecasts does not affect our view on the likely extent of the easing cycle. We still expect only two 25bp rate cuts in this cycle (February and August 2025). The resilience in the labour market reinforces the likely shallowness of this cycle.
“We think the RBA will be cautious in dialling down the restrictiveness of current policy settings, rather than February being the start of an aggressive easing cycle, especially given the uncertainty over the level of current restrictiveness.”
This comes as NAB Group’s CEO Andrew Irvine said that the major bank expects a total of three interest rate cuts over 2025, with the first cut set to occur during the May meeting.
Irvine said: “My prediction is that over the course of the year, it’s going to be slow and measured improvement. And when we get that first rate cut, I think it’s going to have a significant impact on the psyche of consumers, as well as business people that is likely far greater than the actual impact it will have on cashflow.”
ANZ joins the Commonwealth Bank of Australia (CBA) in its prediction for the first rate cut to come in February; however, CBA sees a total of four cuts over the cycle.
[RELATED: Monthly CPI lifts slightly in November]
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