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Highlights
- ANZ (ANZ) now expects the Reserve Bank of Australia (RBA) to cut rates in February.
- A 25-basis point reduction is anticipated due to weaker inflation figures.
- The lender's revised outlook adjusts from a previous May expectation for the rate cut.
Australia's big-four banking giant ANZ (ASX:ANZ) has adjusted its predictions on the RBA’s monetary policy moves, now anticipating a reduction in the cash rate in February instead of May 2025. The revision comes on the back of recent inflation data showing a deceleration in price increases, signaling a softer economic environment.
Inflation Figures Prompt Adjustments
The fourth quarter of 2024 saw inflation rates cool considerably, according to ANZ’s economic team. The bank is forecasting that the trimmed mean inflation for Q4 2024 will come in at 0.5% quarter over quarter, marking the lowest quarterly result since the second quarter of 2021. This is significant as the trimmed mean inflation is a key metric used by the RBA to assess underlying inflation trends and guide its interest rate decisions.
With inflation easing, the lender expects annual inflation to fall to 3.2% year over year by the end of the fourth quarter, a decrease of 0.3 percentage points compared to previous predictions. This is also a significant drop from the RBA’s prior forecast of 3.4%, signaling weaker price pressures in the broader economy.
ANZ’s Forward Guidance
Only a month ago, ANZ had forecast two rate cuts by 25 basis points each—one in May and another in August 2025. However, the cooling inflation prompted a more immediate reassessment, with the bank now pushing forward its expectations to February. The earlier rate cut would be in line with ANZ's previous assumption, which initially suggested a more gradual cycle of three 25-basis point cuts starting in February 2025.
While this swift change in expectations points to a potentially looser monetary policy, ANZ remains cautious in its forward-looking assessments. Their revised forecast does not suggest a drastic economic slowdown but rather reflects the adjustment of monetary policy to accommodate an economy facing slower inflation and, potentially, reduced demand pressure.
What This Means for Investors
The expectations set forth by ANZ have wide-reaching implications across the market, with lower interest rates generally supporting asset prices and easing borrowing costs for businesses and consumers. Those tracking market movements will likely keep a close eye on the upcoming RBA meeting in February to assess the central bank's commitment to an evolving rate-cutting cycle. While market participants anticipate only modest adjustments, the broader economic trajectory of the coming months may still hinge on developments in inflation trends.
With an adjusted forecast for earlier rate cuts, ANZ sets the stage for potential shifts in both policy and investment strategies as the new year unfolds.
