iscover
iscover 
Bendigo Bank’s chief economist David Robertson has said while there is a high probability of the Reserve Bank of Australia (RBA) slashing interest rates in its upcoming meeting on 17–18 February, there are still some factors that prevent this from being a certainty.
According to Robertson, the three factors that stand in the way of a guaranteed cash rate cut are:
1. A strong and resilient labour market, with the unemployment rate holding steady at around 4 per cent and hovering around 50-year lows.
2. Federal and state funding adding to demand along with recent tax cuts; however, business investment has been “sluggish”.
3. US President Donald Trump’s tariffs placing pressure on the Australian dollar, which fell to five-year lows below 61¢ (mainly against the US dollar).
“While further falls in our exchange rate will have some impact on inflation, and appear likely, these three factors help to explain why we continue to only expect a shallow easing cycle ahead,” Robertson said.
“We’ve flagged for over a year now the view that the RBA would be cutting rates in the first half of 2025. The fourth quarter CPI data out last week clearly supported that timing, bringing forward the first cut from May most likely to February.
“Core inflation fell to below both our and the RBA’s forecasts in Q4, dropping to 3.2 per cent. And with underlying inflation running at only 0.5 per cent in the fourth quarter, everything is track for the RBA target to be met this year.
“The monthly indicator for December was even more benign, showing the RBA’s preferred core measure (the Trimmed Mean) ended 2024 at 2.7 per cent. So, this faster progress has the market rating a February 18 rate cut at around an 80 – 90 per cent chance.”
As expected, the recent CPI print prompted many bank economists, particularly those in the big four major banks, to shift their rate forecasts to reflect a rate cut in February.
Inflation has stood in the RBA’s preferred 2–3 per cent range for some time now (currently below the “mid-point” at 2.4 per cent as of 4Q24); however, some believe this to be a temporary effect as a result of energy and fuel relief measures enacted by the government.
[RELATED: Many banks agree a February rate cut is incoming]
