Australians Losing Hope for a Rate Cut in 2024

After the RBA delivered its decision late yesterday to hold cash rates at 4.35%, there has been stipulation whether we will see a rate cut before 2025. Over the next six months, the predictions for RBA rates are varied, with some experts anticipating a significant hike potentially reaching 5%, while others suggest that rate cuts may be off the table until 2025. This divergence highlights the complexity of economic forecasting and the array of factors influencing monetary policy.

  1. Potential for a Rate Hike to 5%

A notable faction of economists is forecasting a possible increase in the RBA’s cash rate, with some suggesting it could rise to as high as 5%. This prediction is largely driven by concerns over persistent inflation and the need to curb rising consumer prices.

Philip Lowe, former RBA Governor, has emphasised the challenges of managing inflation in an environment of strong consumer demand and supply chain disruptions. In a recent interview, Lowe remarked, “Inflationary pressures are proving more resilient than we anticipated, which could necessitate more aggressive rate hikes to stabilize the economy.” This sentiment reflects the concerns of several analysts who argue that a higher cash rate may be necessary to rein in inflation and prevent an overheated economy.

Supporting this view, economists at Westpac have revised their forecast upward, suggesting that the RBA might need to implement further rate increases in the near term. Their latest report highlights that “while there are signs of economic moderation, inflation remains stubbornly high, suggesting that the RBA may need to raise rates to 5% to achieve its inflation targets.”

  1. Expectations for No Rate Cuts Until 2025

Conversely, other experts believe that the RBA is unlikely to lower rates until at least late 2024 or even into 2025. This perspective is grounded in concerns about the fragility of the economic recovery and the potential risks associated with premature rate cuts.

Gareth Aird, Chief Economist at Commonwealth Bank, has expressed scepticism about the feasibility of a rate cut in the near future. “Given the current economic uncertainties and the risk of inflationary pressures resurfacing, it is unlikely that the RBA will reduce rates before 2025. The focus will likely remain on ensuring that inflation is well-controlled and the economy is on a stable growth trajectory.”

Moreover, the latest minutes from the RBA’s board meetings indicate a cautious stance. The RBA has acknowledged the ongoing need for vigilance in monitoring inflation trends and global economic conditions. An excerpt from the minutes notes, “The board remains committed to achieving its inflation targets and will carefully assess economic conditions before making any adjustments to the cash rate.”

Several key factors will influence the RBA’s decision-making over the coming months:

  • Inflation Trends: The persistence of high inflation is a critical concern for the RBA. Recent consumer price index (CPI) data indicates that inflation remains above target, which could push the RBA to maintain or even increase rates to prevent overheating.
  • Economic Growth: Australia’s economic growth rate and employment figures will also play a crucial role. Strong growth and labour market conditions could support the case for higher rates, while signs of economic slowdown might prompt a more cautious approach.
  • Global Economic Conditions: Global factors such as trade tensions, geopolitical developments, and the economic policies of major trading partners also impact the RBA’s decisions. Economic uncertainty abroad could lead the RBA to adopt a more conservative stance.

The outlook for the RBA’s cash rate over the next six months is marked by considerable uncertainty, with forecasts ranging from a potential increase to 5% to a more cautious approach with no rate cuts expected until 2025. The divergence in predictions reflects the complex interplay of inflationary pressures, economic growth, and global economic conditions. As such, stakeholders should closely monitor economic indicators and RBA statements to navigate the evolving landscape of monetary policy.

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