Survey Indicates Australia Likely to Reduce Interest Rates in Third Quarter

Australian economists have recently updated their predictions regarding the Reserve Bank of Australia’s (RBA) monetary policy, anticipating an earlier start to the bank’s easing cycle. This shift in expectation is based on modest reductions in inflation forecasts and aligns with the current trends in money-market pricing. According to a survey of 32 economists conducted on Thursday, the consensus is that the RBA will reduce its cash rate by a quarter percentage point to 4.1% in the third quarter of the year. This is a notable change from last month’s projections, which anticipated the easing to commence in the final quarter.

This adjustment in forecasts is largely a response to the slowing pace of inflation in Australia. Economists now anticipate the Consumer Price Index (CPI) to reach the upper limit of the central bank’s 2-3% target range by the fourth quarter of the year, a more optimistic outlook compared to January’s forecast, which placed this milestone in the first quarter of 2025. 

In November, the RBA raised its cash rate to a 12-year high of 4.35% in a proactive move to counter potential inflationary pressures. However, during this year’s first meeting, Governor Michele Bullock indicated that despite a persistent increase in services prices, the possibility of further rate hikes couldn’t be completely dismissed.

Despite this, with broader inflation showing signs of cooling and unemployment reaching a two-year high in January, the majority of economists believe that the RBA’s next move will likely be a reduction in rates. Andrew Vogel, an economist at S&P Global, pointed out that the slower-than-expected inflation rate towards the end of 2023 has paved the way for a potential earlier easing of monetary policy. He suggests that this trend is likely to continue, improving the economic outlook for 2024 and 2025. With inflation expected to keep decreasing, and economic activities anticipated to rebound as the year progresses, the stage seems set for a shift in the RBA’s approach.

This revised forecast for an earlier easing cycle by the RBA reflects a cautiously optimistic view of Australia’s economic landscape. The balance between managing inflation and supporting economic growth remains a delicate task for the central bank, as it navigates through these changing economic conditions.