Australians struggling with the cost of living crisis may have to wait even longer for interest rate cuts.
The Reserve Bank is expected to leave the cash rate unchanged at a 12-year high of 4.35 percent when it makes its latest announcement on Tuesday afternoon.
But some economists now fear that the next cycle of rate cuts won’t start until 2025, significantly later than the big banks are predicting.
A Finder survey of 28 experts found that seven of them predicted no rate cuts until at least next year, while the rest predicted relief in the coming months.
Independent economist Saul Eslake, director of Corinna Economic Advisory, said the Reserve Bank of Australia would take its time to ease monetary policy even if the US Federal Reserve were to cut interest rates in 2024.
Australians struggling with the cost of living may have to wait longer for interest rate cuts (pictured is a stock photo)
“The RBA has decided that it is willing to tolerate inflation above its target for longer than its ‘peer’ central banks are willing to allow inflation above their respective targets,” he said.
Most economists expect rate cuts from mid-2024, following the April 24 release of inflation data for the March quarter.
Economist Harry Murphy Cruise of credit rating agency Moody’s Analytics said the RBA would wait until September to cut rates after workers received stage three tax cuts.
“The Reserve Bank Board will want to consider the impact of a third round of tax cuts due to come into effect in July,” he said.
“While the cuts won’t derail inflation’s retreat, they will slow it.”
Monthly inflation data showed the consumer price index was 3.4 per cent in January, only marginally above the RBA’s target of 2 to 3 per cent.
But according to the more comprehensive quarterly CPI data, headline inflation was 4.1 percent in December.
According to forecasts published in February, the Reserve Bank does not expect inflation to fall within the target range of 2 to 3 percent before December 2025.
The RBA’s 13 rate hikes in 18 months, between May 2022 and November 2023, have slowed the economy, with gross domestic product growing by just 0.2 percent in the December quarter.
Australia’s annual growth rate of 1.5 percent in 2023 was almost half the level of 2.7 percent in 2022, following the most aggressive rate hikes since 1989.
Australia has not been in a recession since the 2020 Covid lockdowns, but has been in a per capita recession since the March quarter last year, where output per worker has shrunk.
The Reserve Bank is expected to leave the cash rate at a 12-year high of 4.35 percent when it makes an announcement on Tuesday afternoon (pictured is RBA Governor Michele Bullock).
The RBA will now meet eight times a year, instead of 11 as before, and hold two-day board meetings.
A monetary policy decision will be announced in Sydney at 2.30pm, while Governor Michele Bullock will hold a media conference an hour later.
ANZ head of Australian economics Adam Boyton said while unemployment was at a two-year high of 4.1 percent, a tight labor market could still add to inflationary pressures.
“We expect the statement after the 2:30 pm meeting will again highlight the risks that higher inflation expectations become entrenched and that inflation in the services sector could remain persistent,” he said.
‘We also expect the statement to continue to describe the labor market as tight based on the metrics used by the RBA.’
