Out of sync: The RBA was late on raising rates. Now it could be slow to cut them.
Equities and money markets have been buzzing for weeks over the potential for rate cuts in many economies this year, but there are growing doubts whether Australia will be among them.
Equities and money markets have been buzzing for weeks over the potential for interest rate cuts in major developed economies this year. But the RBA was among the last central banks to begin raising rates to combat inflation, and it now looks set to be a laggard in lowering them.
Over in the US, Barclays this week said it now expects the Federal Reserve to start cutting rates in March, compared to its earlier forecast of June, even though core inflation was slightly higher than expected in December. Goldman Sachs is also in the March cut camp. There is more softness in the data coming out of the world's largest economy that was previously expected, giving the Fed the ability to cut rates (which it may need to do to stave off a recession).
In the UK and Canada, markets have been pricing in rate cuts to start in the early months of 2024. And in Europe, investors are also expecting a cut soon even though the European Central Bank’s Francois Villeroy de Galhau recently said the bank would not be rushed and only start cutting when the 2% inflation target had been reached.
So what about Australia?
Right now, money market futures are pricing in a rate cut in Australia around the middle of the year. The ASX also rallied in December off the back of hopes for policy easing.
