ANZ expects 'later and shallower' RBA rate cuts
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The news: ANZ said it expects the Reserve Bank's interest rate cuts to be "later and shallower" than previously forecast.
The numbers: ANZ now expects the RBA's easing cycle to begin in May 2025, having previously forecast the first cut in February.
The big four lender has also revised its expectation on the size of the rate cuts, now expecting two 25-basis-point cuts in total for the year, down from three.
The context: ANZ said that it pushed back its forecast start date due to stronger-than-expected employment growth, a lift in hours worked and some stabilisation in forward-looking labour market indicators.
It also noted that business conditions are holding around long-run average levels and consumers have noticed the government's Stage 3 tax cuts, with a lift in consumer confidence.
However, ANZ said it has not rule out a rate cut in February, noting that lower-than-expected CPI in the fourth quarter and softening in the labour market could prompt the RBA to cut in February.
Westpac also pushed back its timing expectations for rate cuts last week.
What they said: "The RBA's tone also remains on the hawkish side," ANZ's head of Australian economics Adam Boyton wrote.
"At turning points, we should focus more on what the RBA should do rather than its rhetoric, but we had expected a more neutral tone by now.
"With the board still focused on the level of demand exceeding supply, our forecast for six-month annualised trimmed mean inflation to fall just within the RBA's target band by the February meeting is no longer looking like enough."
The source: ANZ economic insight report
