The Reserve Bank will make its next decision on interest rates next Tuesday.
All of the Big Four banks are expecting rates to remain on hold. For several months, they've all been tipping the first cut to occur in November, with four more cuts to follow over the course of 2025.
This week, ANZ Group Holdings Ltd (ASX: ANZ) became the first of the four to alter its view.
ANZ now expects the first cut to occur in February, with only two more to follow by the end of the year.
What are the experts saying on interest rates?
Gareth Aird, Head of Australian Economics at Commonwealth Bank of Australia (ASX: CBA), is sticking with his November forecast for the first interest rate cut.
However, he says the chances of it being delayed are increasing due to signs of stickier inflation.
Aird commented:
Our expectation for a more material loosening in the labour market relative to the RBA's forecasts is a key reason why our base case sees the RBA commence an easing cycle in late 2024.
But given the challenging underlying inflation backdrop and a shortening runway between now and November, the risk to our call is increasingly moving towards a later start date for an easing cycle.
Luci Ellis, Chief Economist at Westpac Banking Corp (ASX: WBC), is also tipping November or thereabouts for the first rate cut.
Ellis said:
The likely trajectory of disinflation from here precludes a rate cut much before November.
The trimmed mean measure of inflation was still a full percentage point above the top of the target range over the year to the March quarter. The Bank will be watching this measure more closely as temporary factors buffet the headline measure in coming quarters.
However, even with a further moderation in trimmed mean inflation, it will take time for enough evidence to accumulate to convince the Board that the disinflation is firmly on track to reach 2-3% on a sustained basis.
The main thing that would cause the RBA to push back the timing of its first rate cut is inflation remaining sticky above the target range.
AMP Ltd (ASX: AMP) Chief Economist Share Oliver said 25% of the world's central banks had begun cutting rates.
The central banks in Canada and Europe cut rates by 25 basis points earlier this month.
However, Australia began its interest rate hiking cycle later than other major economies. Therefore, we are not as far along in taming inflation as other economies, so we are likely to cut rates later.
Dr Oliver said:
The RBA will still want to see lower inflation readings, how the economy responds to the tax cuts next month and more confidence that inflation will decline sustainably into the 2-3% target …
But we continue to see the first rate cut coming by year end as continuing weaker than expected economic conditions provide the confidence it needs regarding the inflation outlook.
Interestingly, after the GDP data the money market removed the probability of another rate hike and is now allowing for around a 46% chance of a cut by year end.
