Westpac pushes back RBA rate cut forecast
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The news: Westpac has pushed back its timing expectations for the Reserve Bank to cut interest rates from February to May, but expects cuts to be more front-loaded than previously forecast.
The context: Westpac's chief economist Luci Ellis said that the group expects the initial moves to be "somewhat front-loaded", with consecutive cuts in late May and early July, in a similar pattern to some peer countries.
This is a change from Westpac's previous expectation of a moderate pace of decline of one cut per quarter, Ellis said. However, Westpac continues to expect the terminal rate to be 3.35%, to be reached by the end of 2025.
Ellis noted that an earlier start in February or March "is still possible", but it is "no longer more likely than a May start date".
She flagged that recent RBA public appearances and meeting minutes suggest that "the balance of probabilities has shifted". Meanwhile, the recent sharp increase in consumer sentiment, though still to a below-average level, and ongoing resilience in the labour market will have also tilted the balance of probabilities to waiting longer, Ellis said.
What they said: "A later start date is also a risk scenario, if inflation does not decline as the RBA is currently forecasting, let alone our own marginally more dovish expectation," Ellis said.
"That said, the longer the RBA board waits, the faster they will need to move thereafter, as it would then be more likely that they have hesitated too long.
"[...] We are mindful, though, that things can pivot quite quickly, and that the RBA’s view of the economy looks somewhat more hawkish than we think is warranted."
The source: Westpac research
