Cash rate to remain on hold, but next move is down

The Reserve Bank of Australia (RBA) is likely to leave the cash rate on hold at 4.35 per cent at next week’s meeting, but the next move should be a cut, according to a major bank.

ANZ has predicted that the first rate cut will not come until 2025, after previously anticipating rates to start falling in November this year.

The bank said it still expected the next move by the RBA would be a cut, with three in total in the easing cycle, however, it now tips the first cut will not be until February 2025, with two more cuts pencilled in for April 2025 and the fourth quarter of 2025.

After the last meeting on May 7, Governor Michele Bullock said the RBA could not rule out the possibility of a cash rate hike.

However, she also confirmed that the RBA believed we are at the peak of the cash rate cycle, despite the slower than expected progress in CPI, which the RBA expects to rise to 3.8 per cent per annum in the next round of quarterly data.

The latest monthly CPI indicator data, released two weeks ago, for the month of April, found annual inflation had ticked up for the second month in a row and was now sitting at 3.6 per cent, the highest annual rate since November of last year. research director, Sally Tindall, said ANZ’s change to its cash rate forecast was a timely reminder for borrowers to think twice when factoring cash rate cuts into their budgets, unless they’re prepared to go out there and get one themselves.”

“While Governor Bullock has said repeatedly that the cash rate is in restrictive territory – and therefore likely to go down – not even the RBA knows exactly when that will be,” Ms Tindall said.

“The one thing we know for certain is that the RBA is not going to start cutting the cash rate prematurely. 

“It will want to be absolutely sure the cash rate is going to return to target in a reasonable timeframe before it starts sharpening its knife.”

Ms Tindall said borrowers shouldn’t focus on the cash rate for now.

“If you’ve got a mortgage, put any chatter of rate cuts out of your mind and focus on building a buffer into your mortgage where you can,” she said.

“While the next move for the cash rate is still, on balance, likely to be down, not up, it’s looking less likely that relief from the RBA in the form of a cash rate cut will come until at least 2025.”

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