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The RBA has moved to a more neutral position on official interest rates, but still some distance from an easing bias. Our latest thoughts and forecasts for domestic and global markets.

Central banks remain in focus, as financial markets eagerly await the first rate cut from a range of advanced economies. The Swiss National Bank was first cab off the rank after their March cut, and from here it should be a close contest for second between the US Federal Reserve and the European Central Bank, in June or July. The Bank of England and Bank of Canada are still more likely to initiate their easing cycles later this year around September, but we remain in unchartered waters.

The RBA still appear to be around 6 months behind this pack, and while the March RBA meeting saw a more balanced view on the outlook than previous policy meetings, the comments that “risks had become a little more even “, and that “aggregate demand still exceeded supply“ continue to imply a mild tightening bias.

Those quotes preceded the latest jobs data, where our unemployment rate remarkably fell from above 4% to 3.7%, suggesting that demand for labour is still strong, but exposing the risk that wages growth may pose to services inflation throughout 2024.

Strong labour markets show the resilience of our economy, but also may imply a longer economic cycle than previously expected, despite cost of living pressures persisting. The two scenarios that appear most likely to support early RBA rate cuts by Spring are: a sharp rise in unemployment (as the economy weakens) or a faster than expected fall in core inflation, however an unemployment rate in the threes isn’t consistent with either of these.

Another challenge for those forecasting early RBA cuts is property prices, with the latest CoreLogic data showing another 0.6% rise nationally in March, and fresh record highs for Adelaide, Brisbane and Perth, together with regional values also powering ahead. While this primarily reflects a lack of new dwellings keeping pace with population growth, it still adds to inflationary risks, so our long-held view that RBA rate cuts are most likely to commence in 2025 is unchanged.

Other factors that could influence this timing include offshore demand, which has strengthened via service exports and for commodities, especially from Asia.
Our economy is obviously exposed to our largest trade partner China, where property development has experienced a sharp downturn; but the latest PMI surveys from China suggest that policy support is proving effective, and with more trade tariffs being lifted on our exports, there are reasons for optimism.

How this all progresses amid heightened global geopolitical tensions remains to be seen, but equity markets here and in most advanced economies set new record highs in late March, so risk appetite is bravely intact.

The RBA board don’t meet in April under their new operating rhythm, so quarterly CPI out on April 24th will be the next key event to monitor, where core inflation should dip just below 4%., consistent with no further hikes, but still a long way from target.

And that’s the market update from Bendigo Bank.