The Reserve Bank meets next week for the first time in 2024, with borrowers around the country holding their breath to see what will happen.
While some economists are predicting that current data will force the bank to lower the cash rate in February, others are reasonably confident that interest rates are unlikely to change for most of the year.
In their latest Monetary Policy Update, NAB Group Economics predict that the Reserve Bank of Australia (RBA) will remain on hold at the February meeting, with the current cash rate of 4.35% now expected to be the peak.
The RBA is expected to then continue on hold until November, before gradually cutting rates by 125 basis points by the end of 2025, taking the cash rate back to 3.1% at that time.
“We had previously expected the RBA to lift rates to 4.6% to take some further insurance that inflation would reach the target band over the next two years”, the update notes.
“However, with the RBA having been reluctant to move higher and the Q4 CPI print providing some breathing room, the data will not push the Board in the same manner as November.”
The report suggests that it is possible underlying inflation will accelerate in the first quarter of this year with the impact of rent subsidies dropping out, but there are signs building that goods disinflation might occur more rapidly than expected.
In the near term this will be a key offset to still-strong services inflation.
“Further out, our forecasts for growth and the labour market are consistent with inflation continuing to ease with growth remaining below trend in 2024 and the unemployment rate drifting higher.
“By late 2024 the RBA’s focus will shift more to the labour market”, the summary concludes.
