2024-08-02 00:16:34
Devayani Satyam
BENGALURU (Reuters) – The Reserve Bank of Australia will keep interest rates near a 13-year high on Tuesday and wait until the first quarter of 2025 before cutting them as price pressures remain elevated, according to economists polled by Reuters.
Inflation unexpectedly rose to a six-month high of 4.0% in May from 3.6% previously, fueling speculation that the Reserve Bank of Australia will raise interest rates.
But that pricing was completely wiped out after inflation fell to 3.8% last month and second-quarter price pressures were lower than expected.
However, the RBA will keep the official cash rate unchanged at 4.35% this year as inflation is well above the central bank’s 2%-3% target range, according to a Reuters poll taken July 31-August 1.
All but one of the 33 economists surveyed expected the central bank to keep interest rates unchanged on August 6. The median forecast and majority opinion were for the central bank to keep rates unchanged until the end of the year, unchanged from the previous survey.
In a survey taken before the June 18 meeting, more than 60% of economists predicted at least one rate cut by the end of 2024.
In the latest poll, no one predicted any change in interest rates at the September meeting.
“The second quarter inflation report will almost certainly take away the chances of an RBA rate hike in August,” said Ben Picton, senior strategist at Rabobank. “We still think the underlying strength of the economy is enough for them to maintain a slightly hawkish bias.”
“Until the inflation report comes out, we expect the Fed to raise rates in 2024. So we think a rate cut this year might be a bit too much. They’re not going to do it,” Picton said.
Among the major local banks, ANZ and NAB forecast interest rates to remain on hold until 2024, while Commonwealth Bank and Westpac expect a rate cut before the end of the year.
Two-thirds of economists surveyed (22 of 33) predict that the benchmark interest rate will not change before 2025. Only 10 economists believe that the benchmark interest rate will be cut by 25 basis points at least once in the fourth quarter, while one economist predicts that the rate will fall to 4.60%.
Market pricing shows that the probability of a rate cut by the end of 2024 is about 55%, which means the RBA’s rate cuts will lag behind the Federal Reserve, which is expected to cut rates twice this year and four times in 2025.
“The perception has been that the RBA is reluctant to raise rates, which simply means the official cash rate will remain elevated for longer relative to other developed markets,” said Craig Vardy, head of Australian fixed income at BlackRock (NYSE:).
“The path of rate cuts from now until 2025 is going to be very slow … the RBA cash rate is currently at 3.60 per cent. We have been at that level for a long time, which means three rate cuts and then we are done.”
Another Reuters poll showed inflation was expected to average 3.4% this year and 2.8% in 2025. The median forecast in the latest poll showed the Reserve Bank of Australia would cut interest rates by 75 basis points next year, taking the official cash rate to 3.60% by the end of 2025.
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