Don’t wait for RBA rate cut: Yarra
Investors in Australia may be optimistically holding out for a rate cut but with the RBA meeting falling the day before the US presidential election, the board may look to wait until 2025.
The US presidential election, slated to be a battle between President Joe Biden and former president Donald Trump, is set to be held on 5 November. Unlike in Australia, it could then take several days until a definite result is known as votes are counted across the different states.
With a monetary policy board meeting to be held by the RBA on 3–4 November, it is likely the board will hold off making any changes without knowing the outcome of the election.
Tim Toohey, head of macro at Yarra Capital Management, said: “I think it will be a grave mistake if the RBA recommenced a hiking cycle which will risk some very real nonlinear outcomes. It might seem heroic at this point to hold out for a cut in Australia in 2024, but for all the reasons mentioned, 5 November might feel very different by the time it rolls around.
“It’s both the date of the US election and an RBA board meeting, so it might not be optimal to adjust policy before the US election outcome is known, but they could well use the meeting to flag a 10 December rate cut. And that is our base case.”
He also flagged the impact of inflation which he expects to be close to 3 per cent year-on-year by December.
“We are also concerned that the central bank is taking way too much signal from a very noisy and incomplete monthly CPI measure and is too prepared to look through the benefit of the state and federal subsidies that will come through to domestic inflation.
“I have no problem putting my name to a forecast that the Australian CPI will be close to 3 per cent YOY by December, give or take 0.2 per cent, either side. By definition, this means in the absence of modest interest rate relief, real interest rates will be rising, compounding what the RBA already sees as restrictive financial conditions.”
AUTHOR
Laura Dew
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