‘Interest rates won’t fall until May’: ANZ pushes out timeline for RBA cut

The big four bank has pushed out its timeline for interest rate relief by three months, after the RBA said inflation was still too high.

ANZ now expects rates will not start to fall until May. Picture: Getty Images

ANZ has pushed back its timeline for a Reserve Bank of Australia interest rate cut, and now expects rates will not start to fall until May, pointing to economic strength and a hawkish tone from the central bank for its decision.

The bank had previously expected rate relief to come three months earlier, with the RBA cutting interest rates by 25 basis points, in February.

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.

But while National Australia Bank also expects rate cuts to start in May, a majority of economists – including those at Commonwealth Bank – still expect rate cuts to start in February.

Despite sizeable interest rate cuts by most Western central banks including the Federal Reserve in recent months, the RBA has kept its official cash rate target at 4.35 per cent since November 2023.

ANZ head of Australian economics, Adam Boyton also pointed to the continued hawkish tone of RBA communications after another speech from its governor Michele Bullock on Thursday night.

“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 Boyton 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.”

Ms Bullock on Thursday night said the RBA expects inflation won’t sustainably hit the middle of its 2-3 per cent target until late 2026.

“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.”

Treasurer Jim Chalmers on Wednesday lauded new figures showing inflation in the year to October had slowed to 2.1 per cent, declaring it was the third consecutive month prices growth had come within the central bank’s 2-3 per cent ­target band.

But Ms Bullock declared the RBA would “look through” the reduction in the headline measure when considering interest rates as it had been distorted by Labor’s power bill rebates.

While the Albanese government has pinned its hopes on interest rate cuts before the election to improve its standing with voters, in recent weeks analysts and economists have revised their rate cut bets amid signs of stubborn underlying inflationary pressures.

On Thursday, markets were fully priced for a quarter percentage point cut at the RBA’s May 20 board meeting, just four days before the cut-off for a federal election, while leading economists, including forecasters at Westpac and NAB, are also predicting a move lower then.

In her post-meeting press conference three weeks ago, Ms Bullock indicated that interest rate cuts were still at least six months away.