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Economists divided: When will the RBA cut interest rates?

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The timing of when the RBA will begin cutting interest rates has become a subject of speculation among economists.

On Tuesday, the Reserve Bank (RBA) kept the interest rate at 4.35 per cent but seemed to take on a more dovish stance in its post-meeting statement, contrasting with its earlier suggestions of potential rate hikes.

Economists are left speculating about when the bank might initiate rate cuts, with the general consensus being that the rate has already peaked.

Markets are pricing in for RBA to cut the cash rate to 4.1 per cent at its September meeting, with more possibly to occur by the year’s end, but economists are fairly divided in their expectations.

In this article we look at the most recent expectations of Australia’s top economists.

CBA’s Gareth Aird

According to Aird, the RBA is likely to commence an easing cycle in September 2024, with the bank pencilling in 75 bp of rate cuts in its profile in late 2024 and a further 75 bp of easing in H1 25, which would take the cash rate to 2.85 per cent.

Aird, however, acknowledged that the risk now sits with August for the commencement of an easing cycle, provided the Fair Work Commission hands down a lift in the minimum and award wage of no more than 4.25 per cent.

ANZ’s Adam Boyton

Boyton favours a November rate cut.

According to the economist, ANZ continues to favour November for the start of a mild easing cycle. The economist cited “sizeable tax cuts” commencing on 1 July alongside the Federal budget as reasons behind its rather conservative approach.

Westpac’s Luci Ellis

This big four bank continues to expect that the RBA is on hold until its late-September meeting.

“Assuming things continue to pan out as expected, it will then have enough assurance that inflation will continue to decline on the desired trajectory,” Ellis said.

“That will allow the board to reduce some of the tightness in the stance of monetary policy and preserve more of the gains on employment”.

AMP’s Shane Oliver

Dr Oliver, the pack’s most optimistic economist, still believes that the first cut will come in June.

However, as of this week, he has acknowledged the growing likelihood that cuts could be delayed until August or September reflecting sticky services inflation, supply side risks, and the RBA waiting to see how the changed stage three tax cuts and any extra budget stimulus are impacting demand.

“And of course, three rate cuts this year will still leave rates well above their lows two years ago,” he said.

HSBC’s Paul Bloxham

Bloxham is the least bullish economist as he continues to hold strong that the RBA will hold through 2024, before beginning to cut in early 2025.

In fact, in the lead-up to the RBA’s March meeting, Bloxham said the board was more likely to discuss whether another hike is needed, rather than about any prospect of rate cuts.

“Forthcoming personal income tax cuts from 1 July and the risk of more fiscal spending in the May budget, perhaps primed by an election that is due before mid-2025, bolster the case for the RBA to remain on hold,” he said.

Moody’s Harry Murphy Cruise

Harry Murphy Cruise from Moody’s Analytics said at the very earliest, the RBA won’t loosen monetary policy settings until September.

“The Reserve Bank board will want to consider the impact of a third round of tax cuts that will take effect in July. While the cuts won’t derail inflation’s retreat, they will delay it,” Cruise said.

GSFM’s Stephen Miller

Miller predicts a cut in the second half of the year.

“Not enough evidence yet but the economy is soft and inflation will probably fall in line (or at a faster pace) than the RBA projects, allowing a cut in the second half of the year,” Miller said.

On Tuesday, he interpreted the RBA’s post-meeting statement as portraying a pivot towards neutral, which the governor, Michele Bullock quickly quashed.