While the consensus is that the Reserve Bank of Australia will hold the official cash rate at 4.10% when its board meets tomorrow, many are calling for another rate cut in light of falling inflation, subdued growth and a cooling labour market.
The first interest cut since 2020 came in February, but the RBA cautioned mortgage holders the likelihood of another cut was very slim.
Headline inflation fell to 2.4% this month and trimmed mean inflation to 2.7%, meaning both have been in the RBA’s target zone of 2-3% for at least three months.
“On inflation grounds alone, the case for an interest rate cut is strong,” said economist and Yahoo Finance contributor Stephen Koukoulas, who labelled the case for further easing “overwhelming”.
Could the RBA cut rates after all?
Analysts from the Commonwealth Bank (CBA), Westpac, NAB and ANZ are all unanimously betting the RBA will keep rates on hold, with CBA, Westpac and NAB pointing to May for the next rate cut, likely to be 25 basis points (bp).
The economic case is mixed however, with Australian GDP growing just 0.6% in the December quarter for a 1.3% lift over the year, well below historical averages.
Labour markets have also suffered, with employment falling by 53,000 in February after a modest increase in January.
“We don’t typically associate April Fool’s Day with serious macroeconomic events, but that’s exactly what we have when the RBA meets on Tuesday - and there may be a surprise after all,” WeBull Securities Australia CEO Rob Talevski said.
“The consensus of a pause broadly makes sense. Hawkish rhetoric from the RBA last month did not indicate to expect the cutting cycle to continue, geopolitical uncertainty out of the US remains at near all-time highs, and the effects of last month’s rate cut are yet to fully trickle down into the economy.
“On the other hand, the recent data could be viewed as soft enough to warrant further discussion, even without the previous cut yet taking effect.
“Given the Bank was accused of waiting too long on the cycle in terms of the upswing, there is a certain level of pressure to get it right on the way down.
“Who knows – the RBA might play us for April Fools and delight us all by delivering another hawkish cut, with close attention paid to April data points and global economic developments driven by the US.
“If it does happen, a 25-bp cut would be most likely, which still leaves us on track for expectations for the year.”
The Federal Government’s budget, and the upcoming Federal election, are likely to play a pivotal role in upcoming interest rate decisions, alongside inflation numbers for the March quarter, due at the end of the month.
The RBA will announce its April rate decision tomorrow at 2:30pm AEDT, April 1. Remaining meetings for 2025 are scheduled for May, July, August, September, November, and December.