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According to a recent poll conducted by Reuters, Australia’s central bank, the Reserve Bank of Australia (RBA), is expected to maintain its key policy interest rate at 4.35% during its upcoming meeting and throughout the remainder of 2024. This decision comes in light of ongoing price pressures that continue to challenge monetary policy.
Current Economic Context
As of July, inflation in Australia slowed to 3.5%, still above the RBA's target range of 2% to 3%. Coupled with a robust job market, this situation provides little opportunity for policymakers to consider rate cuts in the near term. The consensus among economists indicates a strong belief that the RBA will keep its official cash rate unchanged in the upcoming meeting.
In the survey of 45 economists, all participants anticipated that the RBA would hold steady at 4.35% on Tuesday. A significant majority, specifically 40 of the 44 economists surveyed, predicted that interest rates would remain unchanged for the rest of the year. Futures markets are also reflecting a slightly over 50% probability of a rate cut by the end of 2024.
Predictions from Major Banks
Among the major banks, views on interest rates are largely aligned. Australia and New Zealand Banking Group (ASX:ANZ), National Australia Bank (ASX:NAB), and Westpac Banking Corporation (ASX:WBC) all foresee that rates will stay unchanged through 2024. In contrast, Commonwealth Bank of Australia (ASX:CBA) anticipates a single rate cut before the year concludes.
Following the Federal Reserve's recent rate decision, the major banks maintained their positions regarding the RBA's policies, indicating a cautious approach in light of global economic conditions.
Future Rate Cut Projections
Looking ahead, the RBA is expected to commence its easing cycle in 2025, with predictions of 25 basis point cuts in the first three quarters of the year. This would ultimately bring the cash rate down to approximately 3.6% by the last quarter of 2025.
Conclusion
As the RBA prepares for its next policy meeting, the focus remains on managing inflation while fostering economic stability. The central bank's decision to maintain the current cash rate reflects ongoing economic complexities and the balancing act required in navigating inflationary pressures and labor market conditions. With projections indicating potential rate cuts in early 2025, market participants will be closely monitoring upcoming economic indicators and policy announcements.
