Main points (bolding is mine):
- The Australian Q1 24 CPI came in stronger than we forecast. As a result, we shift our central scenario for the RBA to commence an easing cycle to November 2024 (from September 2024 previously ). And we now expect only one 25bp interest rate cut in 2024 (compared with 75bp of easing previously).
- The near-term risk sits with an interest rate hike. But we expect the RBA to be on hold over the next six months given the economy is still contracting on a per capita basis, inflation is forecast to fall further, and the labour market is anticipated to loosen.
- Monetary and fiscal policy are working in tandem. But incredibly strong net overseas immigration has put upward pressure on some components of the CPI basket . This has made the RBA’s task of returning inflation to target more difficult.
- As a consequence, monetary policy is now likely to stay at a restrictive setting for longer.
- We now see a more elongated and conservative easing cycle than previously expected . Our base case sees the cash rate gradually cut from November 2024 to reach 3.10% at end-2025 (a level we believe is just above neutral ).
- The RBA Board may restore its hiking bias at the upcoming May Board meeting. But on balance we expect an ‘on hold’ decision to be accompanied by a neutral bias, in line with the policy decision and Statement from the March Board meeting
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The RBA statement is due next week:
