ANZ says the RBA won’t cut interest rates until February 2025 amid shifting economic conditions

ANZ has become the first of the major four banks to rule out any chance that the RBA cut interest rates this year due to a number of factors.

ANZ pushed back it calls for the first RBA interest rate cut until February 2025. Picture: Lisa Maree Williams/Getty Images

ANZ has become the first of the major four banks in Australia to rule out the prospect that the Reserve Bank will offer any mortgage relief to households feeling the pinch this year.

The bank has pushed out expectations of when the RBA will lower the official cash rate from 4.35 per cent to February, after forecasting for more than a year the central bank would move this November.

ANZ head of Australian economics Adam Boyton said on Tuesday that a recent run of economic data including firmer-than-expected household consumption, continued resilience in the jobs market, persistent inflation and high levels of government spending adding to GDP growth had forced a rethink when the first rate cut would occur.

“The stronger than expected Q1 CPI also makes it hard to see the RBA being sufficiently confident that inflation will return to and stay in the band by the time the November meeting comes around,” Mr Boyton said.

ANZ’s Adam Boyton says high government spending and a stable labour market are reasons why the RBA is unlikely to cut rates this year.

“It’s not that monetary policy isn’t working. It is. The economy has clearly slowed, particularly across private final demand. It’s for this reason that we think a rate hike remains unlikely.”

“However, getting an appropriate balance between the level of demand and supply is likely to take a little longer than expected given the three factors outlined above.”

Research from KPMG found that inflation-adjusted government spending grew $88bn between the 2020 and 2023 financial years, with 21 per cent of GDP growth in the past fiscal year the result of higher government consumption and investment spending.

The ABS noted that government spending increase 1 per cent in the March quarter compared to 0.2 per cent for the broader economy.

Westpac, NAB and Commonwealth Bank’s latest forecast is for the RBA to cut rates by 25bps in November.

ANZ expects that further rate cuts will occur in April 2025, but said May was also possible. It has retained three cuts in its forecasts but saw the final one to see the cash rate fall to 3.6 per cent won’t occur until the final quarter of 2025.

“We see risks around the start of the easing cycle as balanced. Risks around the quantum of easing are skewed to two cuts (50bp in total) being more likely than four (100bp).”

The Reserve Bank has raised interest rates 13 times between May 2022 and November 2023, bringing the cash rate from 0.1 per cent to 4.35 per cent, and putting pressure on borrowers by increasing their mortgage repayments.

On the average $500,000 loan payments have increased $1210 a month and $2420 on a $1m loan, according to RateCity.com.au.