Cup Day rate cut in doubt as RBA nears final straight
Jacob Shteyman |
A Melbourne Cup interest rate cut looks increasingly unlikely, despite the treasurer saying Australia has made ground on inflation.
A hawkish turn from the Reserve Bank of Australia prompted analysts to push back their expectations for when the central bank will next cut rates.
The RBA left the cash rate on hold at 3.6 per cent on Tuesday, in a move widely anticipated by economists and bonds traders.
But accompanying commentary from the bank’s board and governor Michele Bullock was more pessimistic about inflation than expected.
A cloud now hung over whether the RBA would deliver more mortgage relief on Melbourne Cup Day, after most analysts had previously locked it in as a sure thing, said Bendigo Bank chief economist David Robertson.
“Our forecasts are unchanged for a ‘shallow’ RBA easing cycle back to a more neutral rate around 3.25 per cent, but the timing of the next cut is under question,” he said.
Treasurer Jim Chalmers said he would not pre-empt the decision of the independent Reserve Bank, but the fact it had cut rates three times this year reflected the “welcome and encouraging progress” in getting inflation under control.
“Don’t forget that inflation is half or less than half than what we inherited when we came to office,” he told reporters on Wednesday.
“By getting inflation down, managing the budget responsibly, managing the economy in the most responsible way that we can, we’ve been able to get inflation down, and that’s given the Reserve Bank the confidence to cut rates three times already this year.”
After previously anticipating the next cut to come in November, Commonwealth Bank economists pushed back their forecast until February.
The RBA board was concerned that, following strong economic activity and consumer price index figures in the lead-up to the meeting, inflation was set to overshoot their latest forecasts.
CBA similarly upgraded its forecast for trimmed mean inflation, the RBA’s preferred measure, to 0.8 per cent in the September quarter.
“With a lift in trimmed mean inflation for the quarter and better activity data, led by the consumer and a still resilient labour market, we feel there are enough reasons to see the RBA remain on hold in the two remaining meetings in 2025,” CBA head of Australian economics Belinda Allen said.
JP Morgan’s Ben Jarman also retracted his call for a November cut, while the money market lowered its chance from more than half to about a third.
HSBC chief economist Paul Bloxham also thought the RBA was on the hawkish side, but stuck with his prediction for a move lower in November.
“For some time now, we have suggested that while our central case is for two more cuts (in November and February), there is a clear risk of fewer cuts,” he said.
“Whether we get a further cut this year will critically hinge on the Q3 CPI print, due on 29 October, being low enough.”
Bendigo Bank’s Mr Robertson said barring a significant jump in core inflation, the easing cycle should continue.
“But it’s a complex environment. The RBA governor did warn in her press conference that ‘inflation may be persistent’. Time will tell,” he said.
AAP
