ANZ pushes rate cut timeline until May 2025
The big four bank is the latest institution to push out its timeline for a Reserve Bank interest rate cut, as customers start spending their stage 3 tax cuts.
ANZ has become the latest bank to say the Reserve Bank won’t cut rates until May 2025, issuing a gloomy prediction for cash-strapped mortgage holders.
The bank had previously expected rate relief for mortgage holders to come three months earlier, when the RBA first met on February 2025.
The shift in forecast comes after a stronger than expected labour market and business conditions, and confirmation that consumers have “noticed” the Stage 3 tax cuts.
It’s consistent with financial markets pricing on the timing of the first rate cut.
ANZ now joins National Australia Bank and Westpac also expects rate cuts to start in May, while just the Commonwealth Bank are holding with calls of rate cuts in February.
ANZ head of Australian economics, Adam Boyton updated his call following, a key speech by RBA governor Michele Bullock which he called hawkish.
“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,” Mr Boynton said.
“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.”
In more unwelcome news for mortgage holders, not only is ANZ expecting later rate cuts, but they are now also forecasting the rate cuts to be shallower than previously anticipated.
“When we last moved our RBA call back in June, we noted that while we were retaining three cuts in our forecasts, the quantum of easing was skewed to two cuts (50bp in total) being more likely than four (100bp),” Mr Boynton said.
ANZ said Australia’s economy is in a stronger position than previously expected and only two rate cuts are needed to help spur on consumer spending.
“With the economy – notably jobs growth and business conditions – continuing to show resilience, we are also shifting our view on the quantum of rate cuts and now expect only two, in May and August 2025. That leaves the terminal cash rate at 3.85 per cent,” he said.
NAB was the first of the big four banks to tip that the official cash rate will hold at current levels until May 2025.
“The labour market has been stronger than expected and the RBA remains concerned about upside risks to inflation should gradual labour market cooling stall and capacity growth remain sluggish,” NAB stated in its updated monetary policy published in mid November.
“On 30 September, we pulled our rate call forward to a first cut in February.
“We did that expecting an improving balance of risks around the inflation outlook would bring a rate cut into view sooner.
“While Q3 CPI data was as expected, we have been surprised by resilience in labour market indicators.
“It remains our view that the unemployment rate will rise a little further before stabilising around 4.5 per cent in mid 2025, broadly in line with the RBA’s November forecast track.”
The call from ANZ follows a speech from Reserve Bank governor Michele Bullock where she said inflation won’t sustainably hit the 2 to 3 per cent target until 2026.
Ms Bullock said inflation doesn’t need to fall within the target range, but the board needs to be “confident” that inflation is falling towards the target range.
“Overall, the earlier period of high inflation has imposed large costs on families and businesses across Australia, and especially the most vulnerable,” Ms Bullock said.
“If we fail to bring inflation down in a sustainable way, cost-of-living pressures will only compound and monetary policy would need to remain restrictive for longer.
“This is why returning inflation sustainably to the target within a reasonable time frame remains the board’s highest priority.”
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