Within range: Bullock stresses a point at a summit in Sydney. The central bank governor is expected to retain a hawkish position in an imminent announcement. — Bloomberg
SYDNEY: Australia’s central bank is widely expected to hold interest rates at a 12-year high at its first meeting of the year, with investors zeroing in on the future path of policy under a revamped communications regime.
Economists unanimously expect the Reserve Bank of Australia (RBA) to keep its cash rate at 4.35% and probably maintain a hawkish stance given inflation, while cooling, is still elevated.
The RBA “is likely to welcome faster than expected progress towards the target,” said Micaela Fuchila, an economist at Bank of America Securities in Sydney, referring to inflation data that came in under estimates.
“That should be sufficient to confirm rates have peaked.”
Still, the RBA may join global peers such as the Federal Reserve (Fed) in pushing back against any bets on a near-term easing, reflecting Australia’s cautious rate-hike campaign and inflation that is still well above the 2% to 3% goal.
Fuchila, who only sees the first rate cut in early 2025, expects the central bank to stay hawkish “as domestic inflation remains elevated and sticky”.
The RBA’s cash rate is about one percentage point below the Fed’s, even as Australian inflation is higher than in the United States.
Those differences help explain why the central bank governor Michele Bullock is expected to retain a hawkish position in an announcement today, particularly as traders responded to slower fourth quarter consumer price index by bringing forward bets on rate cuts.
Data last week showed headline and core inflation came in a bit over 4%, compared with the RBA’s 4.5% forecasts, prompting money markets to price a 50-50 chance of easing in May and an 80% chance in June.
Economists reckon the central bank in Sydney is more likely to lower rates in the final three months of this year or even 2025.
Australia’s labour market, meanwhile, remains solid and the economy has shown resilience to higher borrowing costs, suggesting there’s no urgency to shift quickly to easing.
Moreover, policymakers won’t want to further fuel house prices that have been driven up by a supply shortage and high immigration.
Economists anticipate the central bank will revise its inflation and growth outlook in its quarterly Statement on Monetary Policy.
Bloomberg Economics said: “The recent spate of weak growth and price data, with inflation undershooting its projections, will probably prompt the RBA to rethink its outlook. We think it will water down its hawkish policy bias and possibly shift to neutral.”
The central bank’s current forecasts show price gains only hitting the top of the target in late 2025, behind economists’ estimates.
“The job of returning inflation to the 2% to 3% target band is not yet done. But the RBA is now on the home stretch,” said Gareth Aird, head of Australia economics at Commonwealth Bank of Australia, the nation’s largest lender.
“The statement accompanying the decision will be issued by the board, rather than the governor. This raises the risk that we get a fresh statement rather than the usual ‘cookie cutter’ approach.”
Aird, who predicts 75-basis-points of cuts this year, expects the RBA to retain its tightening bias.
“Maintaining a tightening bias will also signal to the financial authorities that it’s too early to declare the inflation fight over,” he said. — Bloomberg
