Interest rates: Meet the hawks warning the RBA may not cut rates this year

Already a subscriber?Persistently high inflation, bubbling wage pressures, weak productivity growth and stimulus from income tax cuts mean borrowers may have to wait another year for the Reserve Bank of Australia to cut the cash rate.

While markets in January had pencilled in six or seven quarter-point rate cuts in the US by the end of 2024, they now expect just three rate cuts due to robust economic data and enduring inflationary pressures.to keep the cash rate on hold at 4.35 per cent at its meeting on Tuesday as it takes stock of whether it has done enough to get inflation, currently 4.1 per cent, back to its 2 to 3 per cent target band.

“We see the RBA as unlikely to want to cut rates when the housing market is so tight and housing prices are rising solidly, for fear of pump-priming and driving a further housing price boom,” Mr Bloxham said. This has lead to strong growth in unit labour costs, which increased 6.5 per cent in the 12 months to December.

JP Morgan chief economist Ben Jarman said he did not expect the RBA to cut rates until the first three months of 2025.While economic growth slowed sharply to just 1.5 per cent in 2023, Dr Jarman said the worst of the downturn was over. Falling inflation and the revamped stage three tax cuts on July 1 will support real incomes and household spending from mid-year, giving the RBA reason to stay on hold.“Though none of these mean the policy settings are too loose ...

He said the RBA could not afford to ignore a pick-up in economic activity since it never increased the cash rate as high as it should have. “And then you’ve still got a tight labour market. The job vacancy to unemployment ratio is still quite low. It’s not as tight as it was at the end of 2022, but it still is tight,” Ms Murphy said.“Just because we got a monthly figure of 3.4 per cent annual inflation in January doesn’t mean inflation will keep going down every month thereafter. In fact, I’d suspect absolutely that’s not the case.”

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