Reserve Bank interest rates: ANZ backs in February cut

Relief is in sight within weeks for Australian borrowers and inflation is finally close to coming under control, ANZ has declared.

The big four bank has brought forward its call for when the Reserve Bank will cut interest rates from May to February.

ANZ reckons consumer price figures — to be released later this month —will show quarterly core inflation has dropped to the slowest pace since mid-2021.

The RBA has gradually shifted tone over the past six months and in December gave markets a clear signal that rate relief was on the radar.

But economists have debated whether the central bank will move in February or hold a little longer.

Preliminary price data from the Australian Bureau of Statistics this week showed core inflation had fallen back to 3.2 per cent in the 12 months to November, sparking investors to up their bets on a cut next month.

ANZ predicts the key measure will run at just 0.5 per cent for the December quarter, lining up with an annual pace of 3.2 per cent. That’s below the RBA’s forecast.

“We think this will be enough for the RBA to cut the cash rate by 25 basis points (0.25 percentage points) at its February meeting,” senior economist Catherine Birch said on Friday.

“Although the labour market remains resilient, the sharper-than-expected slowdown in wage growth in 2024 and weaker inflation forecast for (the December quarter) suggest that an unemployment rate at or just below 4 per cent may be consistent with underlying inflation in the target band.”

But she said the RBA would be cautious, and acknowledged a hold was “not off the table if the RBA puts more weight on its concerns that the persistent tightness in the labour market still poses upside risks to inflation”.

Economists are at odds over just how low Australia’s unemployment rate could sustainably stay without pushing inflation higher.

Ms Birch said it was possible the current rate of 3.9 per cent was consistent with getting inflation under control.

Among other banks, HSBC has argued the RBA would wait longer to cut because the jobs market is still tight, while AMP thinks a February move is now more likely than not.

Commonwealth Bank on Friday also backed a cut next month.

“The inflation data leaves us comfortable with our expectation for the RBA to commence an easing cycle in February, with the clear risk a rate cut is delayed stemming from a still tight labour market,” economist Harry Ottley said.