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RBA Rate Cut Expectations Delayed Until Well Into 2025

AUSTRALIA

In August RBA Governor Bullock clearly said that it is too early to discuss rate cuts and while the Board isn’t “ruling anything in or out”, current conditions do not warrant a “near-term” easing. Forecasters have shifted out their rate cut expectations with few now projecting one before year end and Bloomberg consensus has one 25bp in Q1 2025 with 85bp by end-2025. However, our policy reaction function, now with the core inflation gap, still estimates rates trending higher.

  • Bloomberg consensus has only 5bp of easing in Q4 2024 followed by 20bp in Q1 2025 compared with the current rate of 4.35%. There’s a full 25bp in Q2 2025. Many analysts don’t expect the first cut until Q2 2025, while in contrast the market has 25bp of easing priced in by end-2024.
RBA OCR expectations bp

Source: MNI - Market News/Bloomberg


  • In the FY25 budget the federal government announced cost-of-living measures, which temporarily reduces headline inflation for the year from July, especially the energy rebate. July CPI data is released August 28.
  • The RBA has said that it will look through the transitory reduction in inflation and focus on the underlying trimmed mean. As a result, we have re-estimated our simple RBA policy reaction function with the core inflation gap.
  • Economic fundamentals suggest that rates should be only around 5bp higher in Q3 than they currently are but then almost 40bp higher by end-2025. This is around 15bp more than the original equation, which continues to use the RBA’s May forecasts, as not only does the core inflation gap have a larger coefficient but it is forecast to be 0.1pp higher in Q4 2025.
Australia policy reaction function %

Source: MNI - Market News/Refinitiv

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