Why the wait for rate cuts will go on: Birch

Any lowering of interest rates in Australia is still unlikely until late-2024, according to ANZ Senior Economist Catherine Birch – and even then, we shouldn’t expect a long sequence of cuts.

At its March meeting, the Reserve Bank of Australia (RBA) kept the official cash rate on hold, with many observers noting a more “dovish” tone in the central bank’s report. But in the same week, better-than-expected employment data highlighted persistent resilience in the economy.

Speaking at the ANZ Debt Conference earlier in March, Birch said there were three key reasons ANZ expected any rate cuts to be some time away.

“Firstly, the inflation cycle has lagged in Australia compared with other countries,” she said. “The RBA has been a bit of an outlier in central banks in having a more balanced trade-off between bringing inflation back down to target [while] trying to avoid unnecessary damage to the labour market.

“I don't think we're going to see a shift in that.”

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Birch said the wage cycle in Australia, which lagged its global peers, was another reason rates cuts weren’t around the corner.

“We have quite a rigid pay-setting regime in Australia compared with some other countries,” she said. That means “wage growth was slower to pick up in Australia”.

“We're only just peaking now, whereas other countries are generally quite a bit past their peak,” she said. “And it also means we’ll be slower to see wages growth ease as well.”

The third reason, according to Birch, are upcoming tax cuts which will boost household disposable income.

“We've estimated that in that first year, 2024-25, [the cuts] will be equivalent to around two 25-basis-point rate cuts,” she said.

Even when rate cuts do arrive, Birch warns there’s unlikely to be many of them.

“We're expecting only a shallow easing cycle in Australia,” she said. “Moving [rates] back to towards neutral, rather than actually having to stimulate.”

Watch the video above to find out more.