The economists at the country’s fourth-largest bank is the first of the Big Four to push its cash rate cut prediction into 2025 after forecasting for over a year that the Reserve Bank will begin easing in November 2024.
ANZ now expects the RBA to lower the benchmark rate from 4.35% to 4.1% in February 2025 when the Board first meets next year.
“The stronger than expected Q1 CPI 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,” ANZ head of Australian economics Adam Boyton said.
The rate-setting committee will convene next week, during which 95% of ASX traders place their bets on another rate hold.
As of today, ANZ’s peers CommBank, Westpac, and NAB are yet to announce changes (if any) to their predictions, with the three majors sticking to their November rate cut call.
Before its Tuesday announcement, ANZ had been for weeks cautioning that its earlier forecast was skewed to a later start.
However, the recent data flows including the stronger-than-expected household consumption, continued resilience in the jobs market (excluding the pandemic) over the past 10 years, and high levels of government spending adding to GDP growth have finally prompted a formal change in their cash rate view.
Judo Bank economic head Warren Hogan is among those who have earlier ruled out any prospect of a rate cut on the back of the latest quarterly inflation uptick.
The nation’s headline inflation currently sits at 3.6% after accelerating by 1% in the March quarter.
To bring inflation down to RBA’s ideal range of 2-3%, Mr Hogan is tipping in as many as three further cash rate hikes to keep a lid on inflation - with the first to potentially occur in August.
“We have to keep the economy soft for an extended period to get inflation down – there’s a chance we are not remaining soft and that there is something of a recovery happening,” he earlier told the Savings Tip Jar podcast.
Is the cash rate working to better the economy?
Despite scrapping hopes for mortgage holders this year, ANZ said a rate hike “remains unlikely” as it believes monetary policy is working to slow demand.
“However, getting an appropriate balance between the level of demand and supply is likely to take a little longer than expected,” Mr Boyton said.
Westpac earlier noted that recent monetary policy changes may not be working as effectively as intended in slowing demand for essential goods and services.
Household consumption data showed spending on essential or non-discretionary items was up 2.1% over the March quarter.
By comparison, discretionary spending only rose 0.1% in the same period, suggesting that a high cash rate has more effect in arresting spending for non-essentials like holidays, hospitality, and clothing and footwear.
Westpac, along with CommBank, earlier retreated from its previous call of an earlier September rate cut to fall in line with NAB and ANZ (before the revision).
Following the expected 25 basis point rate cut in February 2025, ANZ expects a follow-up easing shortly thereafter.
“Most likely in April, although May is possible,” Mr Boyton said.
“We are retaining three cuts in our forecast but see the final cut being delayed until the final quarter of 2025,” he added.
ANZ is pencilling in three 25 bps cuts for a total of 75 bps of easing, bringing the cash rate down to 3.6% by end-2025.
Consumer economic outlook worsens
This latest update on the cash rate outlook is likely to pull the already low confidence of Australian consumers down.
The newly released ANZ-Roy Morgan consumer confidence index fell 3.5 points to 77 pts last week, the largest weekly decline this year and the first time the figure dropped below 80 pts in six months.
This has brought the four-week moving average to 79.9 pts.
The sharp fall is believed to be the consumers’ response to last week’s GDP data which confirmed Australia’s economic growth has stalled and the per-capita recession is raging on.
“Households were particularly wary about the year ahead, with subindices for the 12-month outlook for the economy and households’ own financial situation recording their largest weekly declines of the year,” ANZ economist Madeline Dunk said.
Consumer confidence for economic conditions in the next 12 months nosedived by 5.4 pts, and future financial conditions plunged by 4.9 pts.
“This leaves both subindices at their lowest levels since November,” Ms Dunk said.
Across the housing cohorts, confidence is at a 2024-low for households with a mortgage and those who own their home outright.
Photo courtesy of ANZ
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