ANZ has adjusted its rate forecasts, tipping that the Reserve Bank (RBA) will likely cut the cash rate by 25 basis points at its February meeting.
The big four bank, which previously moved back its rate cut expectations to May, said “the weaker-than-expected monthly CPI indicator for November” prompted it to downgrade its Q4 trimmed mean inflation forecast by 0.2 percentage points to 0.5 per cent quarter on quarter.
This, if realised, would see annual trimmed mean inflation decline 0.3 percentage points to 3.2 per cent year on year, below the RBA’s forecast of 3.4 per cent.
“We think this will be enough for the RBA to cut the cash rate by 25 bp at its February meeting, rather than waiting until May,” ANZ economists Catherine Birch and Adam Boyton said in a research paper published on Friday.
As of Friday morning, markets had priced in a 75 per cent chance of a February cut.
ANZ now predicts two 25 bp cuts in this cycle, in February and August 2025, taking the cash rate to 3.85 per cent.
The bank’s economists judged that the RBA will be “cautious” in dialling down the restrictiveness of current policy rather than February being the start of an aggressive easing cycle.
While Birch and Boyton acknowledged that a hold in February is not off the table, the pair said, “the sharper-than-expected slowdown in wage growth in 2024 and weaker inflation forecast for Q4 suggest an unemployment rate at or just below 4 per cent may be consistent with underlying inflation in the band”.
Like ANZ, CBA expects trimmed mean CPI to be 0.5 per cent over Q4 and 3.2 per cent over the year.
CBA was the only big four bank still entertaining a February rate cut even prior to the release of the latest monthly CPI print.
NAB and Westpac are for now maintaining their May rate cut expectations.
