Could Rates Be Cut As Early As May?

While today was a hold, speculation continues to build as to when the Reserve Bank of Australia will cut rates. While there are different ways to consider this, it will be driven mostly by what happens to inflation over coming months, but also the timing of data releases.

Inflation is definitely coming down and far quicker than what was anticipated at the end of last year. At the end of November, the ASX 30 Day Interbank Cash Rate Futures index was pricing in another rate increase in February, which obviously never occurred. Once December inflation was released, the outlook changed dramatically and the index is now pricing in cuts in September 2024, February 2025 and August 2025.

While markets are timing a cut in September 2024, the timing of the release of quarterly inflation data is also likely to play a role. Monthly inflation is currently at 3.4 per cent. While this is very close to the RBA’s inflation target of between two and three per cent, it is likely that they will wait for March 2024 quarterly inflation. This will be available on the April 24, 2024. If it does come in at below three per cent, the earliest they will likely cut would be at their next board meeting on the May 7, 2024.

Continued weakness in the economy may be another catalyst for a May cut, even if inflation isn’t quite at below three per cent. GDP growth came in at a weak 0.2 per cent for the December quarter. While we aren’t quite headed for recession, it does show that the brakes are on economic growth. So much so that at a parliamentary hearing in Canberra last month, Michelle Bullock, the RBA Governor, stated they may cut rates before inflation hits below three per cent.

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