ANZ shifts Aus rate call to Feb

ANZ Research has brought forward its forecast for the first interest rate cut of the cycle in Australia to February 2025, after softer-than-expected November inflation data. ANZ Research previously expected the Reserve Bank of Australia (RBA) would begin its easing cycle in May.

Speaking to the 5 in 5 with ANZ podcast, ANZ Australia Senior Economist Catherine Birch said the outlook had changed following a weaker-than-expected monthly consumer price index (CPI) indicator in the November. Birch said ANZ’s fourth-quarter trimmed mean inflation forecast had been downgraded as a result.

“Previously we thought [trimmed mean inflation] would come in largely in line with the Reserve Bank of Australia’s forecast of 3.4 per cent over the year, but we have downgraded it by 0.2 percentage points to 3.2 per cent,” she said.

“And quite a bit of that is also reflecting a downgrade in some of the services inflation as well, which is also something that the RBA has been concerned about.”

Although the forecast is for a rate cut, Birch said a hold could not be ruled out entirely.

“We can’t write off a hold by the RBA at the February meeting, particularly because there is still a bit of resilience in the labour market,” she said.

“Job vacancies rose by 4.2 per cent over the quarter, in Q4, which was the first rise since mid-2022. And the unemployment rate fell to 3.9 per cent in November.”

Market focus will now turn to the number of times the RBA could cut rates this year.

“We haven’t changed our view on how many cuts there will be in this cycle,” Birch said. “We think there will still only be two 25-basis point rate cuts. One in February, and then an extended pause until the next one in August 2025.”

Birch cautioned against expectations of a deep easing cycle, suggesting the current rate environment may persist for some time.

“There is growing evidence that actually inflation can be consistent with the target band, at the same time that unemployment is sitting at around 4 per cent or even just a bit below,” she said.

“We think the cuts will be more about the RBA cautiously dialling back the restrictiveness of policy, rather than February being the start of an aggressive rate cutting cycle.”