RBA to hold interest rate this year, first cut seen in February – Reuters Poll By Reuters

Written by Devayani Sathyan

BENGALURU (Reuters) – Australia’s central bank will keep its key interest rate on hold at 4.35% on Tuesday and for the rest of the year, according to a Reuters poll of economists, as economic tightening and sticky inflation still call for a cautious approach.

Consumer inflation eased to 2.8% last quarter, within the Reserve Bank of Australia’s target of 2-3% for the first time in three years, but core inflation, stripped of volatile components, remained high.

During its post-COVID tightening cycle, the RBA raised rates by 425 basis points from 0.10% to 4.35%, less than many of its peers despite the risk of prolonged inflation.

That was to promote job creation, which is part of the mandate of the central bank. The unemployment rate has remained steady between 4.0% and 4.2% since April.

With the employment market still strong and interest rates relatively low, the RBA is likely to be slower to ease policy than other central banks in developed countries, in line with its Asian peers.

All 30 economists polled on Oct. 30-31 expected the RBA to hold its official cash rate at 4.35% at the end of its two-day policy meeting on Nov.

All but expected the central bank to leave rates unchanged at the December meeting.

“We don’t expect the RBA to change the official money rate. Other than that, what we’ve seen at the margins is a gradual softening in their language from hawkish to equable,” said Craig Vardy, head of fixed income. BlackRock (NYSE:) Australasia.

“We think the data was very much in line with the RBA’s thoughts on the path of core inflation. That is, it is still too high for them to think about reducing the rate in 2024 … early 2025 is almost a reality. .”

All major local banks – ANZ, CBA, NAB, and Westpac – forecast no rate change this year. However, all four expected the RBA to cut rates at its first meeting in 2025 in February.

Almost 70% of respondents who had an outlook for next year, 20 out of 29, expect a reduction of 25 points in February to 4.10%. Of the remaining nine, eight predicted no change while one saw a significant cut to 3.75%.

Markets are not pricing in the first reduction until April.

Average forecasts in the study showed the rate of cutting the RBA by 75 points next year, to end 2025 at 3.60%, compared to a total of 225 bps of reduction expected from the US Federal Reserve.

“(Core) inflation will not enter the target range until the middle of the third quarter…So without a recession, (the RBA) will probably not rush to cut rates too much,” said My. Bui, an economist at AMP (OTC: ), predicts a three-digit decline next year.

“The reduction rates basically bring it back to the normal level, which in our view is a little over 3%.

With the Fed hiking faster than the RBA, the Australian dollar will recover all of its year-to-date losses of 3.5% by the end of January and trade around $0.68, according to a separate Reuters poll of foreign exchange strategists.

(More news from the November Reuters world economic survey)