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VIEW: Westpac Expects 100bp Of 2025 Easing To Begin In Feb

AUSTRALIA
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Following the lower-than-expected Q4 CPI data, Westpac is now forecasting the RBA to begin easing in February. It acknowledges that one data point would not normally be enough for a move but other data has been “so mixed”. With disinflation occurring faster than the RBA projected in November, it is likely to have the “confidence to start the rate-cutting phase”. Westpac is forecasting a 100bp of easing in 2025.

  • It sees “the RBA as remaining data-dependent from here and not in a hurry to move further”.
  • “Conditional on further declines in inflation and some softening in the labour market, we see cuts in May, August and November, taking the terminal rate to 3.35%. This is in effect a reversion to our earlier call, now that it has become clearer that the economy is evolving broadly in line with our forecasts, and not the more hawkish view of domestic costs growth that would have supported further delay.”
  • “In addition to the trimmed mean outcome, we see encouraging signs in housing-related inflation suggesting that the momentum in domestic price pressures is fading a bit faster than the RBA feared.”
  • On one hand domestic demand has disappointed as consumers spend less of tax cuts than assumed and wages growth has been lower than the RBA expected. On the other hand, the labour market has been “more resilient” but Westpac believes that “the good news on inflation beats the stronger news on the labour market”.
  • “While we do not regard recent exchange rate movements as particularly consequential for the RBA decision, the prospect of more volatility here and in financial markets more broadly could have been a reason to delay and wait for more information.”
  • Westpac observes that elections don’t normally impact the timing of rate moves, but with the new Board in place for the April meeting, the RBA may want to start easing with the current Board so as not to appear “caught up in the politics of the situation”.
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Following the lower-than-expected Q4 CPI data, Westpac is now forecasting the RBA to begin easing in February. It acknowledges that one data point would not normally be enough for a move but other data has been “so mixed”. With disinflation occurring faster than the RBA projected in November, it is likely to have the “confidence to start the rate-cutting phase”. Westpac is forecasting a 100bp of easing in 2025.

  • It sees “the RBA as remaining data-dependent from here and not in a hurry to move further”.
  • “Conditional on further declines in inflation and some softening in the labour market, we see cuts in May, August and November, taking the terminal rate to 3.35%. This is in effect a reversion to our earlier call, now that it has become clearer that the economy is evolving broadly in line with our forecasts, and not the more hawkish view of domestic costs growth that would have supported further delay.”
  • “In addition to the trimmed mean outcome, we see encouraging signs in housing-related inflation suggesting that the momentum in domestic price pressures is fading a bit faster than the RBA feared.”
  • On one hand domestic demand has disappointed as consumers spend less of tax cuts than assumed and wages growth has been lower than the RBA expected. On the other hand, the labour market has been “more resilient” but Westpac believes that “the good news on inflation beats the stronger news on the labour market”.
  • “While we do not regard recent exchange rate movements as particularly consequential for the RBA decision, the prospect of more volatility here and in financial markets more broadly could have been a reason to delay and wait for more information.”
  • Westpac observes that elections don’t normally impact the timing of rate moves, but with the new Board in place for the April meeting, the RBA may want to start easing with the current Board so as not to appear “caught up in the politics of the situation”.