Rates reality bites
The Reserve Bank’s highly anticipated rate-cutting cycle could be on ice as soon as it really begins. That’s the best guess of some of the country’s top forecasters following Trump’s tariffs.
There has been a lot said about the upcoming Reserve Bank board meeting, and many forecasters think a rate cut on 18 February is in the bag. The Albanese government would no doubt portray this publicly as a victory in the fight against inflation and — as we have noted — see it as an opportune time to start an election campaign.
Make no mistake, for many households any rate cut would be very welcome during a cost-of-living crisis. But a 25 basis point cut would barely touch the sides after 13 increases to 4.35%, one of which took place before Labor won the last election.
HSBC chief economist Paul Bloxham, who was recently crowned the most accurate forecaster in the Financial Review’s regular survey of economists, changed his prediction this week for the first time since May 2024. He now thinks a rate cut this month is the most likely situation.
But what happens after that?
Bloxham tells Capital Brief that the shift in the global trade environment caused by US President Donald Trump’s new tariff regime, which is changing by the day, is a “potential downside risk to global growth”. The outcome for individual countries’ economies depends significantly on negotiations and the events over the coming months, yet there’s no doubt in his mind that it’s disruptive and a downside risk.
