Westpac Rba To Start Cutting Cycle

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Westpac Rba To Start Cutting Cycle

Westpac - Rba To Start Its Cutting Cycle In May 2025

According to Westpac, the RBA will likely wait until May 2025 to start its rate-cutting cycle. While some experts are forecasting the first rate cut in February 2024, Westpac believes it will happen in May.

Westpac added that the concerns about sticky inflation, improved consumer sentiment, and a strong job market mean that the RBA can delay its easing policy.

Rba Waits For Decline In Inflation

The chief economist of Westpac added that the possibility of a Feb/Mar rate cut is still on the table. However, it will likely be delayed till May 2025.

However, the chances of a rate cut in May 2025 could also become uncertain if inflation fails to decline in accordance with the RBA forecasts.

For now, the RBA has kept the rates unchanged at 4.35%, which is a 12-year high. The decision was made in November, and at that time, RBA highlighted the need to keep the policy restrictive.

In the last quarter, Australia's CPI declined to 2.8%, which has now fallen within the RBA's range of 2.0 - 3.0%. This happens for the first time in the last 3 years, but the core inflation remains high.

One factor that has helped lower the headline inflation in the last few months was the subsidy on energy. However, food and housing prices remain high. When this is combined with high consumer spending, the underlying inflation remains high.

The RBA's recent meeting minutes also show that inflation must decline before the central bank can begin lowering the policy rate. According to RBA, the inflation will decline towards the 2-3% range by the year 2026.

Despite this, Westpac added that the RBA is expected to lower the rates sharply at the start of the easing cycle. The initial rate cut by the RBA will be outsized as the central bank is delaying the rate cuts for now.

However, a spike in the inflation could further delay the RBA's plan to lower the policy rate sometime in 2025.

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