Finder’s RBA Survey: 1 in 4 experts say rate cut could be off the cards until 2025
Despite lower than expected inflation, economists don't expect rate cuts to come into effect until at least September.
In this month's Finder RBA Cash Rate Surveyâ„¢, 41 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.
All 41 experts believe the RBA will once again hold the cash rate at 4.35% in March.
Graham Cooke, head of consumer research at Finder, said the cost of living crisis may be nearing its conclusion.
"With inflation continuing to reduce, it seems the RBA's rate hikes are having the desired effect.
"The question is now not if the RBA will cut rates – but when?"
Anthony Waldron from Mortgage Choice said recent data shows the economy is slowing, inflation is easing and households are cutting back on spending.
"The cumulative effect of these factors will likely give the RBA reason to keep the cash rate steady," Waldron said.
Matthew Peter from QIC said despite reduced inflation, a sluggish economy means rate hikes are now off the table.
"Elevated migration, coming tax cuts and ongoing wage increases will stop the RBA from easing back on monetary policy until later this year," Peter said.
Rate cuts not on the cards until 2025
Almost three-quarters of the panel (71%, 24/34) believe the recent inflation numbers are not enough to bring forward cash rate cuts.
Of the panellists who weighed in*, 1 in 4 (25%, 7/28) believe the RBA won't start cutting rates until 2025.
Panellists are evenly split on whether the RBA will make the first cut before September (43%, 12/28) or afterwards (43%, 12/28).
For homeowners hoping for a rate decrease to ease their mortgage, 1 in 10 (11%, 3/28) are predicting a cut in May.
Shane Oliver from AMP said economists were already expecting the RBA to start cutting in June and the inflation numbers have not been low enough to bring this forward.
David Robertson from Bendigo Bank agreed.
"The RBA will want to see much more progress with core inflation before cutting official rates," Robertson said.
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.
When asked if the US Federal Reserve cuts rates if it would make the RBA more likely to follow directly afterwards, more than half of experts (55%, 17/31) said they did not think it would be more likely.
Saul Eslake from Corinna Economic Advisory said the RBA has been intentionally slower to hike rates and will also be slower to cut them than the US and others.
"I think the RBA has decided it is willing to tolerate inflation being above its target for longer than its 'peer' central banks are willing to allow inflation being above their respective targets, in order to preserve as much as they can of the gains made in recent years in reducing unemployment and under-employment," Eslake said.
Cooke said that while a US rate cut wouldn't immediately trigger one here, it wouldn't make it less likely.
"The US Federal Reserve has hinted that it may cut rates 3 times in 2024 – if they go ahead with this plan, it's difficult to see this have no effect at all on Australia.
"If the US cuts this dramatically, the RBA is unlikely to stay put."
3 in 4 experts don't think stage 3 tax cuts will increase inflation
The majority of experts (73%, 24/33) believe the federal government's stage 3 tax cuts will not drive inflation higher.
Nicholas Frappell from ABC Refinery said, "The short term impact may offset cost of living pressures, as opposed to genuinely loosening household financial conditions."
Peter Munckton from Bank of Queensland and Mark Crosby from Monash University both said the impact of the change in tax cuts on economic growth would be relatively modest.
Experts who think the stage 3 cuts will increase inflation cited simple supply and demand, although many were still in favour of them.
Adjunct Professor Noel Whittaker of QUT Business School said, "Tax cuts mean more pay in people's pockets, which means more money to spend."
Nicholas Gruen of Lateral Economics said, "Any substantial tax cut will tend to drive inflation. It doesn't mean you shouldn't pursue them, only that you need offsetting policies elsewhere."
David Robertson of Bendigo Bank agreed, saying, "The stage 3 tax cuts are a welcome first step in the need for broad based tax reform. Nevertheless they will provide some modest fiscal stimulus that makes a rate cut this year less likely, but still should allow rate cuts in 2025."
Cooke said the government seems to have hit the nail on the head with its tax cuts.
"The stage 3 cuts have proven popular with many voters, and more importantly, don't appear to risk re-energising inflation according to the majority of our economists.
"With savings accounts offering sky-high interest rates, Aussies would be best advised to put any tax money in their savings account," Cooke said.
*Experts are not required to answer every question in the survey
Here's what our experts had to say:
Tomasz Wozniak, University of Melbourne (Hold): "Yet unlikely! My forecasts using monthly and weekly, domestic and foreign series indicate the beginning of a downward trend in the cash rate. However, the uncertainty around this trend remains large enough to suggest a HOLD decision. For the first in my forecasting exercise term structure of interest rates models for monthly data exclude the hold decision from the forecast interval in favour of a cut. Other groups of models and those for other data balance this effect out in my pooled forecast, though. These forecasts are available at https://forecasting-cash-rate.github.io/".
Matthew Greenwood-Nimmo, University of Melbourne (Hold): "I think the cash rate is likely to be maintained at the current level for some time, until the economic climate justifies a rate change. It seems likely that the next change to the cash rate is likely to be cut, but we're not at the stage to see that happen yet."
Adj Prof Noel Whittaker, QUT Business school (Hold): "It is obvious the economy is slowing down, and there is no way they will put up rates in this environment."
Aarti Singh, University of Sydney (Hold): "Inflation seems to be slowly coming down and the monthly CPI indicator rose 3.4% in the 12 months to January."
Anthony Waldron, Mortgage Choice (Hold): "The latest economic data published by the Australian Bureau of Statistics shows that the economy is slowing, inflation is easing and households are cutting back on spending. The cumulative effect of these factors will likely give the RBA reason to keep the cash rate steady."
Kyle Rodda, Capital.com (Hold): "With inflation trending lower and slack apparently building in the labour market, there's little need for the RBA to tighten any further. If the economy continues to trend in this direction, rate cuts could be coming by the second half of the year."
Stella Huangfu, University of Sydney (Hold): "In January, inflation stayed at its lowest level since November 2021, standing at 3.4% on an annual basis, the same inflation rate as observed in December 2023. Concurrently, the real GDP experienced a modest growth of 0.2% in the December quarter, marking the most subdued quarterly growth rate throughout 2023.It is highly unlikely that the RBA will hike the interest rate in March or May."
Matthew Peter, QIC (Hold): "Inflation continues to abate, while the outlook for the economy weakens. Rate hikes are now off the table. However, elevated migration, coming tax cuts and ongoing wage increases will stop the RBA from easing back on monetary policy until later this year."
Nalini Prasad, UNSW Sydney (Hold): "Inflation is moderating, giving the RBA some time to wait and see what happens."
Shane Oliver, AMP (Hold): "The RBA is likely to still be waiting for more confidence regarding the fall in inflation at its March but the combination of slowing growth, rising unemployment and falling inflation should see it in a position to start cutting at its June meeting (if not then in August)."
Cameron Kusher, REA Group (Hold): "Inflation is moderating and the economy continues to slow. There's no reason to expect the RBA to make any changes to monetary policy at this stage."
Harry Murphy Cruise, Moody's Analytics (Hold): "Australia's fight against inflation is ahead of schedule. Headline inflation dropped to 4.1% year on year in the final three months of 2023—a monumental improvement from 5.4% in the September quarter. On top of that, core inflation, which strips out volatile movements, fell to 4.2% from 5.1%. Meanwhile, annualised inflation over the six months to December sat just 0.5 percentage point above the RBA's 2% to 3% target range. Better still, some of the stickiest drivers of inflation are being tamed. In the December quarter, service inflation dropped to its lowest year-on-year reading since September 2022, while non discretionary inflation fell to its lowest since December 2021—before the RBA began its tightening cycle."
Cameron Murray, Fresh Economic Thinking (Hold): "Although many are expecting rates to fall, unemployment is still low, inflation is falling but at a slower rate, and global growth is still high."
James Morley, The University of Sydney (Hold): "Economic conditions will continue to weaken for the Australian economy, with slow growth and rising unemployment throughout 2024. Inflation is also likely to continue falling, but could remain above the target range until 2025. The RBA will continue to be concerned about services inflation and, in my mind, be unlikely to cut until they see further progress on lower services inflation and also start to see rate cuts in the United States and other countries. I believe a weakening of economic conditions and progress on inflation will see the RBA begin rate cutting in the second half of 2024, possibly with the September meeting."
Evgenia Dechter, UNSW (Hold): "Most indicators suggest a significant downturn in economic activity, with recent inflation measures also indicating a decline. Given the cautious approach of the RBA, it will likely wait for a few more months to confirm these indicators before considering lowering the cash rate."
Nicholas Gruen, Lateral Economics (Hold): "They should cut now, but they'll leave it, because it's part of RBA psychology not to admit that immediate past changes were a mistake, which is what a cut now would be interpreted as."
Mala Raghavan, University of Tasmania (Hold): "Despite a 3.4% rise in the CPI over the 12 months to January 2024, the RBA is expected to maintain the cash rate at 4.35% in March. Further, the monthly CPI increases to 4.1% when excluding volatile items. Concerns arise from the uptick in essential items like housing costs, food, non-alcoholic beverages, and financial services, mainly impacting low-income households in Australia. These factors provide a rationale for the RBA to retain the cash rate before considering a rate cut around the middle of the year."
David Robertson, Bendigo Bank (Hold): "The RBA will likely retain its tightening bias in March before moving to a neutral position in May (after the next quarterly CPI data) but no rate cuts until November at the earliest. A more patient approach delivering 5 cuts next year remains our basecase forecast, while earlier cuts (in spring) may only result in a couple of cuts."
Nicholas Frappell, ABC Refinery (Hold): "Australia is in a per-capita recession however the RBA may stick it out for the final leg in curbing inflation."
Jeffrey Sheen, Macquarie University (Hold): "Inflation is closing in on the RBA's target band. The final descent will be slow and turbulent. By mid-year, global and Australia's growth will weaken, which should lead to some monetary policy easing from August."
Mark Crosby, Monash University (Hold): "The economy remains robust enough, and inflation is still trending slowly towards the target. Current settings are appropriate and don't warrant changes through at least H2 this year."
Garry Barrett, University of Sydney (Hold): "Latest data is not sufficient to support decreasing or increasing the cash rate at the moment."
Peter Munckton, Bank of Queensland (Hold): "That is when it will be clear that inflation will be within the RBA's 2-3% inflation target."
Peter Boehm, Pathfinder Consulting (Hold): "With negative per capita GDP and overall GDP flatlining, Australia is effectively in a recession. Cost of living pressures, falling standards of living and falling optimism about the future all point to at least a hold and I suggest a reduction in interest rates later in the year. It would seem the RBA's November 23 rate increase was overkill and there are no tangible signs that cost of living pressures will be eased anytime soon. Rate reductions are now the only way to go given the Federal Government's inability to address fundamental cost of living issues."
Dale Gillham, Wealth Within (Hold): "We are seeing inflation easing and indeed spending habits have changed as more are struggling with financial hardship."
Mathew Tiller, LJHooker Group (Hold): "The latest data shows that households, businesses and the broader economy are starting to feel the impact of last year's interest rate increases. Spending has decreased, unemployment is rising and inflation is falling. Although the economy hasn't softened sufficiently for the RBA to implement rate cuts, the next anticipated move, following a period of unchanged rates, will likely be a decrease."
Rich Harvey, PROPERTYBUYER (Hold): "Mortgage pain is becoming more acute for households as the year progresses. Evidence of households cutting back in spending in retail and other sectors is showing through and inflation is trending down steadily. Likely that RBA may be able to start the cutting cycle in Aug or Sept. But still a careful balancing act not to re-ignite the economy too quickly."
Jakob Madsen, University of Western Australia (Hold): "The inflation is getting closer to the target rate."
Malcolm Wood, Ord Minnett (Hold): "Sticky inflation and fiscal stimulus."
Richard, Holden (Hold): "Inflation is still far too high and is becoming entrenched."
Stephen Koukoulas, Market Economics (Hold): "Low inflation, weak growth and rising unemployment."
Leanne Pilkington, Laing+Simmons (Hold): "Slowing inflation and minimal economic growth mean the RBA is expected to consider cutting rates but should this occur, it's more likely to begin later in the year, once these trends are more established."
Geoffrey Kingston, Macquarie University Business School (Hold): "The Bank is making decent progress in slowing down inflation. Accordingly, the economy continues to slow. By the same token, services inflation is sticky and the Bank is traditionally inertial. For example, the Bank is unlikely to cut before the Fed. Indeed, it remains possible that one more rate rise will be necessary, given that fiscal policy is looking increasingly expansionary."
Tim Nelson, Griffith University (Hold): "Inflation is less of a concern than falling GDP per capita. The RBA will not want to push the economy into recession."
Sean Langcake, Oxford Economics Australia (Hold): "Inflation is on the right track. But it is still above target and the next segment of the disinflation will be more of a struggle as cost of living subsidies roll off and upward pressures on services prices persist. The RBA will take a wait-and-see approach through most of 2024."
Stephen Miller, GSFM (Hold): "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."
A/Prof Mark Melatos, School of Economics University of Sydney (Hold): "Inflation remains above the RBA's target band despite moderating in recent months. House prices appear to have significantly decoupled from incomes and shrugged off the rate increases to date. As long as low unemployment (effectively full employment) persists, the cash rate is unlikely to be reduced."
Craig Emerson, Emerson Economics Pty Ltd (Hold): "The economy is slowing sharply."
Stephen Halmarick, CBA (Hold): "Holding as inflation decelerates."
Saul Eslake, Corinna Economic Advisory Pty Ltd (Hold): "I think the RBA has decided it is willing to tolerate inflation being above its target for longer than its 'peer' central banks are willing to allow inflation being above their respective targets, in order to preserve as much as they can of the gains made in recent years in reducing unemployment and under-employment. That's one reason why they haven't raised their cash rate as much as their peers (in the eurozone, UK, Canada, US and NZ). But the corollary of having been later to start lifting rates, and having lifted them by less, than their peers, is that the RBA will also be slower to start cutting rates than their peers. And even more so when you also take into account that Australian households will, on 1st July, be getting income tax cuts which, in terms of their impact on aggregate household cash flows, are equivalent to two 25 bp rate cuts - which households in the euro area, UK, Canada, US and NZ will not be getting."
Michael Yardney, Metropole Property Strategists (Hold): "The most recent inflation data came in much softer than many commentators expected, which was much to everyone's relief and the RBA had no reason to raise interest rates, but it's still too early to drop rates. There are lots of different ways to look at how inflation is coming down, but if you look at the most recent quarter and annualise it, we're now at the bottom of the RBA's target range."
