Bendigo Bank’s April Economic Update
The RBA has moved to a more neutral position on official interest rates, however, they are a long way from adopting an easing bias, according to Bendigo Bank Chief Economist, David Robertson.
In his April forecast, Mr Robertson says the RBA is around six months behind most other central banks, and while the March RBA meeting saw a more balanced outlook, remarks made by the Reserve Bank still suggest patience. “The comments made at the March RBA meeting, such as “risks had become a little more even,” and “aggregate demand still exceeded supply,” continue to imply a mild tightening bias,” Mr Robertson said.
“Those quotes preceded the latest jobs data, where our unemployment rate fell remarkably from above 4% to 3.7%, suggesting demand for labour is still strong, but exposing the risks that wages growth may pose to services inflation through 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,” Mr Robertson said.
"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 uncharted waters.
“Another challenge for those forecasting early RBA cuts is persistently high property prices, with the latest CoreLogic data showing another 0.6% rise nationally in March.
"While these findings primarily reflect 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 remains unchanged," Mr Robertson said.
Mr Robertson also noted other factors coming into play that could influence the timing of a rate cut. This includes offshore demand, which has strengthened via service exports and for commodities, especially from Asia.
“Our economy is exposed to China - our largest trade partner - where property development has experienced a sharp downturn. However, the latest PMI surveys from China suggest policy support is proving effective, and with more trade tariffs being lifted on our exports, there are reasons for optimism," Mr Robertson said.
Under the RBA’s new operating rhythm, the central bank won’t be meeting in April, so the next key event to monitor is the quarterly CPI, out on 24 April, ahead of the RBA meeting from 6-7 May.
"The quarterly CPI should show core inflation dip to just below 4%, consistent with no further hikes, but still a long way from target,” Mr Robertson concluded.
Watch David Robertson’s April Economic Update.
