RBA will cut rates six months after rest of world: Macquarie boss

The chief executive of Macquarie Group, Shemara Wikramanayake, says she expects the Reserve Bank will not cut interest rates for another six months because inflation in Australia remains “sticky” compared to other developed economies.

Wikramanayake told an infrastructure conference in Sydney on Friday the group’s “latest guess” was for a cut to the cash rate from its current level of 4.35 per cent around March next year, because of persistent inflation. The latest consumer price index (CPI) data showed inflation was 3.5 per cent in the year to July 2024, and Wikramanayake said this showed Australia was “running at a slightly different speed to the rest of the world”.

Macquarie CEO Shemara Wikramanayake told a conference in Sydney inflation in Australia was six months behind other developed economies.Credit: Louie Douvis

RBA governor Michele Bullock, who again kept the cash rate on hold last month, has indicated rates are unlikely to start coming down until next year. In the US, where rates currently sit between 5.5 and 5.25 per cent, Federal Reserve chair Jerome Powell is expected to announce a cut next week, following the European Central Bank this week and the Bank of England last month.

Wikramanayake said the economy still showed positive signs, saying though annual domestic growth of around 1 per cent was “sluggish”, the figure was “actually stronger than just about every other G7 economy except the US”.

“The RBA didn’t hike rates as much as some of our peers around the world, and that was because I think they were trying to sustain the employment pick-up that we had post-COVID. And frankly that seems to have worked,” she said.

Wikramanayake added that unemployment, which drifted up from 3.5 per cent in June last year to 4.2 per cent in July this year, was closer to pre-COVID levels than in the US, UK, Canada and New Zealand.

“That’s why their economies are slowing more, and their inflation is slowing more, and this is why
their central banks are able to reduce rates a little bit sooner.”

Tensions between the independent central bank and the federal government reached a head this month when Treasurer Jim Chalmers said rate hikes were “smashing the economy”. Bullock has warned some Australians will have to sell their homes in response to high interest rates and inflation, but the latest Resolve poll suggests voters hold the government, and not the Reserve Bank, responsible for inflation.

Wikramanayake said she thought the impact of revised stage 3 tax cuts, which took effect from July, and subsequent rate cuts would see the economy pick up soon.

The banking boss spoke at industry think tank Infrastructure Partnerships Australia’s annual conference the day after Macquarie opened its offices above the new Sydney metro station at Martin Place. Chalmers attended the opening of the new building on Thursday night.

Macquarie helped build the station after its unsolicited offer to Transport NSW was accepted in 2018. Wikramanayake said private investor appetite for similar infrastructure projects had recovered after interest rates had stabilised, and Macquarie now had “record dry powder” – or $376 billion – invested in infrastructure funds.

“Private capital has a role to play, but the public side, as we all know, has to create the environment for that money to come in, which is a reliable framework.”

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