RBA easing cycle influenced by Fed Reserve: ANZ

ANZ’s economics team has provided a forward look into interest rates during 2024, with the expectation that the Federal Reserve’s easing cycle set to commence in 3Q24 will increase the likelihood that the Reserve Bank of Australia (RBA) will follow suit.

“Fed easing isn’t an automatic trigger for the RBA, as domestic conditions also need to be conducive,” ANZ’s economics team stated.

“Still, growth and inflation in the US slow enough to enable the Fed to ease would help set the conditions for the RBA to also cut, particularly given the synchronous nature of the current global economic cycle.”

Meanwhile, AMP’s chief economist Shane Oliver has predicted that the cash rate has hit its peak and while the risk of another rate hike come February persists, “falling inflation should head this off so our base case is that the RBA has peaked ahead of rate cuts in the September quarter, taking the cash rate down to 3.6 per cent by year end”.

As of December 2023, ANZ, the Commonwealth Bank of Australia (CBA), and Westpac, also viewed the cash rate to have reached its peak of 4.35 per cent, however, the February decision will be largely dependent on incoming data, such as the next quarterly Consumer Price Index (CPI) data and unemployment data.

Signs of progress

The minutes of its final monetary policy meeting in December 2023 revealed that the RBA noted that there has been “encouraging signs of progress towards the board’s objectives and that this needed to continue”.

The decision to hold the cash rate in December came as the RBA believed that the recent datasets over November 2023 “did not warrant a material revision to the outlook and that there is the possibility of a larger rise in the unemployment rate than anticipated”.

“Members observed that monetary policy was working to bring aggregate demand and supply into closer alignment. They noted that the risk that it takes longer than expected to return inflation to target was balanced by the risk that aggregate demand slows more quickly than anticipated,” the RBA stated.

Additionally, board members acknowledged that the pace of disinflation in some other countries over recent months had accelerated.

“If emulated in Australia, this would be helpful in bringing inflation back to target,” it stated.

[RELATED: ‘Encouraging signs of progress’: RBA]