Will the RBA deliver a cut at its next meeting?
With inflation continuing to ease, further reductions in the cash rate appear likely, according to a bank economist. However, the next cut may not come as soon as some expect.
“Market pricing now matches our forecast of two more rate cuts, taking the cash rate down to around 3.6% by year-end,” said David Robertson (pictured above), chief economist at Bendigo Bank. “We continue to expect a relatively shallow easing cycle and agree with the RBA that it would be foolish to rely on an April 1 cut, when they next meet.
“However, the next quarterly CPI data out on April 30 should reveal more evidence that inflation is slowing, allowing a second rate cut on May 20.”
The RBA faces several factors that could complicate its path to further rate cuts, Robertson said, including a rise in retail sales, which increased 0.3% in January as consumer confidence improved; increased public spending at both state and federal levels ahead of upcoming elections; and resilient labour market conditions, with strong employment growth.
“As the RBA minutes noted, the strongest case for not cutting rates last month was continued tightness in labour markets although the minutes also noted that ‘there was possibly more capacity in the labour markets than previously judged’,” Robertson said.
He added that while unemployment may edge higher, it may not be a requirement for further rate cuts.
Geopolitical uncertainty and trade tensions
Looking ahead, Robertson expects economic growth to improve this year, with inflationary pressures easing due to lower interest rates and previous tax cuts. However, global risks remain a key concern.
Recent US tariffs on trade with Canada, Mexico, and China have added another layer of uncertainty to the global economy, Robertson noted in Bendigo Bank’s latest economic update.
“Any global forecasts need to consider upside and downside scenarios, including the indirect impact of trade tensions on our largest trade partner China,” he said, adding that while Chinese stimulus measures have helped support its economy, future developments remain uncertain.
“The further down the horizon we look, the more opaque the outlook becomes, and stock markets are also looking more cautious as the broader impact of tariffs takes shape.”
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