As we approach the Reserve Bank of Australia's (RBA) February meeting, the financial community is a buzz with predictions and analyses regarding the future of interest rates. With a backdrop of global trade uncertainty, historic low unemployment, and stubborn inflation, and a Federal election looming, experts have varying opinions on the RBA's next move. To keep our community across various streams of thought, GSA reached out to our network to get a sample of thought leadership on what might be on the horizon.
Simon Arraj, Director & Responsible Manager at Vado Private, believes a rate cut is on the horizon. Arraj forecasts that the RBA will likely cut interest rates by 25 basis points (bps) at its February meeting, reducing the cash rate to 4.10%. He emphasizes that the deciding factor will be the Q4 2024 mean trimmed inflation. “If the data comes in under0.50%, then it's highly probable we see a rate reduction at the February meeting”.
On the other hand, Aaron Browne, Director Relationships, Large Clients at Judo Bank, expects the RBA to hold the cash rate unchanged in February. While inflation has come back into the target band and there is significant political pressure being applied, Browne believes the RBA will wait for more data before reducing the rate. He points to the strong December employment data, particularly the growth led by the private sector, as a reason for caution. With low unemployment and net migration still strong, there are inflationary drivers which would be hard to ignore, warranting another few months of data before a rate cut. Browne also highlights the political landscape, noting that pressure from politicians will continue to increase ahead of the upcoming election. If inflation continues to moderate to the middle of the target band and we see any slowing in the private sector labour market, a 25 bps rate cut could be expected on the 1st of April.
Sam McCarthy, Director at Fresh Finance Group, shares a similar sentiment to Browne, predicting that rates will be on hold in February. With a backdrop of global trade uncertainty, historic low unemployment, and stubborn inflation, which is slowly declining, McCarthy believes rates will be on hold in February to give time for these factors to stabilize. He notes that Australia is behind the rest of the developed world in the rate-cutting cycle but emphasizes the resilience of the Australian economy. Individuals and businesses do need relief and a confidence boost - so does the government, so there will be mounting pressure for a cut at the following RBA meetings in April and May.
Dylan Tomkins, Director of Wealth Management at Centennial Funds, is watching the upcoming announcement with keen eyes, given the impact of interest rates to the Property Funds Management sector. Despite the industry being eager to see a rate reduction to improve investor confidence, Tomkins also predicts a hold in February, followed by a potential cut in March or April. This cautious approach aligns with the sentiments expressed by Browne and McCarthy.
The future of interest rates in Australia remains uncertain, with experts divided on whether the RBA will cut rates in February or hold steady. While there is a consensus among experts that a rate cut is likely soon, the timing remains uncertain. The RBA's decision will hinge on upcoming economic data, particularly inflation and employment figures, as well as the political climate leading up to the election. As always, the financial community and community at large will be watching closely.
