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The Reserve Bank of Australia (RBA) is anticipated to initiate a policy shift by reducing interest rates, according to analysts at Capital Economics. This would mark a change from the RBA’s decision to maintain rates at 4.35% for the eighth consecutive meeting in December, which was seen as a dovish hold.
The RBA has expressed increased confidence that inflation is moving sustainably towards its target and has acknowledged downside risks to the economic outlook. If data trends align with or fall short of expectations, the RBA indicated a readiness to relax monetary policy tightness.
Capital Economics predicts a 25 basis point (bp) rate cut at the RBA’s upcoming meeting, a view supported by the majority of forecasters polled by Bloomberg. Out of 25 analysts, 23 expect a 25bp reduction, while two predict rates will remain unchanged. Financial markets are also anticipating the cut, with a roughly 90% chance priced in for this outcome.
Despite the leaning towards an interest rate cut, the situation is not entirely straightforward. Recent data indicate that consumer spending is showing signs of a strengthening recovery, which complicates the decision for policy easing.
Nevertheless, the consensus among analysts and market expectations suggests that the RBA will likely reduce rates to support the economy amidst the perceived risks.
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