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An economic update from Bendigo Bank’s chief economist, David Robertson, forecasts housing to be a major factor forcing the Reserve Bank of Australia (RBA) to push rate cuts to 2025.
In his April statement, Robertson explained that firming economic indicators around the country, coupled with looming cash rate cuts from international reserve banks, has bolstered hope that Australia might follow suit in 2024.
But Robertson said that the nation is tracking at roughly six months behind other central banks, and that the RBA’s recent meeting notes seem to suggest that Australians will have to be patient.
“The comments made at the March RBA meeting, such as ‘risks had become a little more even,’ and ‘aggregate demand still exceeded supply,’ continue to imply a mild tightening bias,” Robertson said.
The economist opined that for rate cuts to be brought forward, the RBA board would likely want to see a sharp rise in unemployment or a faster than expected fall in core inflation. Given that the unemployment rate dropped from 4 per cent to 3.7 per cent according to the Australian Bureau of Statistics’ recent reporting, Robertson said that employment is unlikely to be a driver of cash rate cuts this year.
Meanwhile, Australia’s house prices, which have remained on a fairly stable or upward trajectory despite high mortgage rates, will be a major factor causing the RBA to be cautious about making moves before 2025, according to Robertson.
“Another challenge for those forecasting early RBA cuts is persistently high property prices, with the latest CoreLogic data showing another 0.6 per cent rise nationally in March.
“While these findings primarily reflect a lack of new dwellings keeping pace with population growth, it still adds to inflationary risks, so our long-held view that RBA rate cuts are most likely to commence in 2025 remains unchanged,” he said.
International economic movements might continue to fuel Australians’ calls for cash rate cuts, but the team at Bendigo Bank cautioned that the current set of circumstances facing the country set it apart from others, and are unlike anything the nation has experienced before.
“The Swiss National Bank was first cab off the rank after their March cut, and from here it should be a close contest for second between the US Federal Reserve and the European Central Bank, in June or July. The Bank of England and Bank of Canada are still more likely to initiate their easing cycles later this year around September, but we remain in uncharted waters,” Robertson said.
Though he noted that international factors would have an impact on how the coming months play out in terms of Australian fiscal policy.
“Our economy is exposed to China – our largest trade partner – where property development has experienced a sharp downturn. However, the latest PMI surveys from China suggest policy support is proving effective, and with more trade tariffs being lifted on our exports, there are reasons for optimism,” Robertson said.
He noted that the April inflation data would be important to monitor ahead of the RBA’s next meeting in May.
“The quarterly CPI should show core inflation dip to just below 4 per cent, consistent with no further hikes, but still a long way from target,” Robertson concluded.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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