The Reserve Bank’s first cash rate cut since 2020 might be more than a year away, as the central bank embarks on an extended pause that has economists divided over whether enough has been done to tame inflation.on hold for the second month at 4.1 per cent, outgoing RBA governor Philip Lowe said on Tuesday that recent data were consistent with the bank’s goal to get inflation, now 6 per cent, back to the 2 to 3 per cent target range without an outright fall in GDP.
Westpac chief economist Bill Evans said Dr Lowe’s shift in language showed he was more confident about the outlook for inflation. “As the evidence of the weakening spending continues to build, the case for raising rates becomes progressively more difficult.”On Tuesday, Dr Lowe said he did not expect inflation to return to within the 2 to 3 per cent target range until “late 2025”.
On Tuesday, Dr Lowe said further tightening may be required, given the potential for services inflation to remain at a two-decade high due to higher wage growth and flat-lining productivity. He expected growth to slow to 1 per cent next year and the unemployment rate to jump to 5 per cent from 3.5 per cent.
“Barring any new inflationary shocks, there’s a good chance the RBA is done tightening altogether,” he said.But the resilience of the jobs market and inflationary pressures in the labour-intensive services sector means it is unlikely the central bank will have the scope to cut rates before May 2024.