There is a (fairly high) degree of wishful thinking in Australia regarding a potential rate cut by the Reserve Bank of Australia. The context is that the Bank has held the cash rate at 4.35% for 13 consecutive months.

Reports on the site point out that while one of Australia’s big four banks is predicting a rate cut in February, two others say it is possible (but not predicting a February cut).

Commonwealth Bank (CBA):

• Base case for a February cut: sees the RBA cut rates by 25 basis points in February 2025, with further easing of up to 100 basis points over the year, bringing the cash rate to 3.35%.
• Positive political signals: Recent comments and statements from RBA support this perspective, although the decision is not yet certain.

NAB and ANZ acknowledge the possibility but do not expect it:

• ANZ:

  • Reduced median inflation below the RBA’s forecast increases the chances of a February cut.
  • Labor market resilience: A strong labor market remains a key point for RDA timing.

• NAB:

  • Inflation within target: Improving inflation trends are not a barrier to rate cuts, although a resilient labor market does not suggest immediate urgency.
  • Gradual cuts expected: The RBA is likely to cut rates in 2025, with the first cut potentially coming in February.

And, Westpac has been firmly behind since February:

• Key to employment stability: Strong employment conditions and low unemployment are stabilizing factors, preventing immediate cuts.
• Rate cut later in 2025: Forecasts good economic growth through the end of 2025, with a potential rate cut based on evolving conditions.

A meeting in May is a popular choice, but market prices rose against April after the CPI data. I don’t expect a February decrease.