By Veronica Dudei Maia Khongwir
BENGALURU (Reuters) – Australia’s central bank will hold interest rates steady on Tuesday as a resilient labour market keeps inflation elevated, according to economists polled by Reuters who pushed forecasts for the first cut to the second quarter of next year.
The Reserve Bank of Australia is the only central bank among its peers that has not yet begun lowering the cost of borrowing, in part because it raised benchmark rates by a comparatively modest 425 basis points between May 2022 and November 2023.
Inflation, which the RBA targets at 2%-3%, fell to 2.8% in the previous quarter from a late 2022 peak of 7.8% as global supply chains gummed up following the pandemic.
But core inflation has remained stubbornly high at 3.5%, and with unemployment near a record low the RBA is still likely to prefer keeping interest rates higher for longer.
All 44 economists in the Nov. 28-Dec. 5 Reuters poll expected the RBA to hold its official cash rate at 4.35% at the end of its two-day policy meeting on Dec. 10.
An over 60% majority, 25 of 40, forecast the RBA to first cut rates by 25 basis points in Q2 2025 to 4.10%, compared with a majority saying the first quarter in a November poll.
Three of the major local banks in the survey, ANZ, NAB, and Westpac, shared that view, while CBA forecast the first cut in Q1 2025.
“The data flow subsequent to the November RBA meeting was a bit more resilient, particularly on the labour market,” said Luci Ellis, chief economist at Westpac, who switched her forecast for the first rate cut from February to May.
Financial markets are currently pricing in over 70% chance of a cut in April.
Ellis added “the RBA have shown a digging in of the heels” on the economy in assessing that aggregate demand continues to outstrip supply.
Since then, there have been signs the economy is weakening. It grew at its weakest annual pace since the pandemic last quarter.
“Given growth has been slow for the last year, we expect that to translate through into some further softening in the labour market but it will be some time before the RBA feels comfortable gradually cutting rates,” Taylor Nugent, senior economist at NAB, said.
“The economy is making only very gradual progress towards balance and the RBA will be later and shallower than other central banks having held rates in less restrictive territory for the last year or so.”
Falling mortgage rates next year were expected to help Australian home prices to rise steadily next year, a separate Reuters poll showed.
With the RBA expected to cut rates by less than the U.S. Federal Reserve, the Australian dollar was forecast to gain nearly 1.5% in a year from about $0.644 currently, according to a Reuters poll of foreign exchange strategists.
(Other stories from the Reuters global economic poll)