RBA kicks rate cut possibility down the road
The road to rate cuts will be a “bumpy” path, according to economists, with the first cut unlikely to occur until the end of 2024.
Yesterday, the Reserve Bank of Australia (RBA) held rates at 4.35 per cent in its monetary policy meeting.
In a statement, RBA governor Michele Bullock said the decision had been taken as inflation remains high and is falling more gradually than expected, and the economic outlook remains highly uncertain.
“The board expects that it will be some time yet before inflation is sustainably in the target range and will remain vigilant to upside risks. The path of interest rates that will best ensure that inflation returns to target in a reasonable time frame remains uncertain and the board is not ruling anything in or out.”
Reacting to the announcement, investment experts said it was likely that the RBA would have considered the possibility of a hike upwards from 4.3 per cent.
In the UK, the Bank of England has rates at 5.25 per cent while they are sitting at a range of 5.25–5.5 per cent.
Stephen Miller, investment strategist at GSFM, said Bullock’s comment about remaining “vigilant” indicates the board believes there is only a remote prospect of any policy rate reduction in 2024. He even questioned whether the board had considered a further monetary policy hike instead of a pause at this month’s meeting.
“I would be surprised if the option of a policy rate rise was not on the table at this week’s meeting and the bank has gone from something close to a neutral bias, to something resembling a tightening bias, albeit that move was of an incremental nature.
“The reality is that those of us who were not long ago anticipating a policy rate reduction this year may have to cool their heels for a while yet. So might a government that heretofore had been anticipating a pre-election policy rate decline.”
Harvey Bradley, portfolio manager at Insight Investment, said: “The economic data since the previous meeting has started to challenge the narrative of ongoing moderation of growth and inflation and has moved the economic surprise indices to positive territory.
“This has left the market wondering whether the next move in rates for the RBA might need to be a hike rather than a cut. The RBA has subsequently moved to a more balanced outlook in the near term which is at odds with most other central banks who continue to signal the next move in rates will most likely be down.”
AMP chief economist, Shane Oliver, said there is a “significant” risk of another rate hike taking place this year.
“The road to rate cuts will likely remain bumpy, and while our base case is now for the first cut to come at year end, the risk of another rate hike in the near term is significant as is the risk of a further delay in rate cuts into next year.”
AUTHOR
Laura Dew
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