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The big four bank has revised its cash rate call, bringing forward the first rate cut to next month.
Australia and New Zealand Bank (ANZ) has adjusted its cash rate forecasts, saying that the Reserve Bank of Australia (RBA) will likely cut the cash rate by 25 bps at its February meeting (set for 17–18 February).
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This would take the cash rate to 4.10 per cent.
While ANZ had previously moved its prediction of the first cash rate reduction from February to May 2025 (due to stronger-than-expected employment group, good business conditions, and growing consumer confidence), it has now reverted back to a February cut.
It now thinks there will be two 25-bp cuts in this cycle, in February and August 2025, taking the cash rate to 3.85 per cent.
The change in forecast has come following the publication of November 2024 inflation figures, which showed that inflation was lower than they had expected, resulting in updates to ANZ’s December forecasts. New dwelling price growth has also been falling.
As such, ANZ now thinks the next full inflation figures (for Q4) will result in trimmed mean inflation being 0.2 percentage points and 0.1 percentage points lower (respectively) than in its previous forecasts.
The Q4 forecasts will be published on 29 January, making February a ‘live’ meeting for the RBA board.
In an economic preview from ANZ Research, ANZ economists Catherine Birch and Adam Boyton said: “We expect trimmed mean inflation to print at 0.5 per cent q/q in Q4 which would be the lowest quarterly result since Q2 2021. This would see the annual rate decline 0.3ppt to 3.2 per cent y/y, below the RBA’s forecast of 3.4 per cent y/y.
“The 6-month annualised rate for trimmed mean inflation is forecast to fall to 2.6 per cent, around the middle of the target band. Services inflation is estimated to drop to 4.1 per cent y/y, which would be the lowest since Q3 2022.
“We think this will be enough for the RBA to cut the cash rate by 25bp at its February meeting.”
While the bank’s economic team has said that a hold in February is “not off the table” (should the RBA put “more weight on its concerns that the persistent tightness in the labour market and expected recovery in household spending growth still pose upside risks to inflation”), it concluded: “We think the RBA will take a cautious approach in dialling down the restrictiveness of current policy settings, rather than February being the start of an aggressive easing cycle.”
ANZ now aligns with CBA in its cash rate reduction timings. CBA also said earlier this week that the November inflation figures were “very good” (it had forecast a 2.6 per cent outturn) and was “very positive news for the Q4 24 Australian inflation story”.
CBA now expects trimmed mean CPI to be 0.5 per cent over Q4 and 3.2 per cent over the year.
NAB and Westpac – which are both backing a May cash rate cut – have not yet updated their cash rate forecasts since the CPI figures were released.
As of Friday morning, markets had priced in a 75 per cent chance of a February cut.
More to come.
[Related: Inflation rose in November, but trimmed mean continues to fall]
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