Investing.com-- The Reserve Bank of Australia is now expected to begin its easing cycle in May 2025 instead of February, ANZ said, citing stronger-than-expected employment and stabilizing business conditions.
The bank now anticipates only two 25 basis points reductions in 2025, down from its previous forecast of three.
The revision comes as Australia’s labor market shows resilience, with robust job growth and increased work hours, coupled with steady business conditions around long-term averages. Consumer confidence has also lifted, reflecting recognition of the government’s stage three tax cuts, ANZ said in a note.
“The RBA’s tone remains hawkish, with the Board still focused on demand outpacing supply,” ANZ said. It added that inflation, measured on a six-month annualized trimmed mean basis, is projected to fall within the RBA’s target band by February, but that alone may not suffice to prompt early easing.
"A lower-than-expected Q4 CPI and some softening in the labour market could prompt the RBA to cut in February, especially given that the November Board minutes appeared to open the door to an early 2025 easing," said ANZ analysts, but emphasized that the probability of the central bank acting preemptively remains low.
ANZ’s updated forecast places the terminal cash rate at 3.85%, as it now expects only two rate cuts, one in May, and another in August 2025.
“Barring a significant shock, easing is more likely to be driven by a gradual decline in inflation rather than a sharp downturn in activity,” ANZ noted.
Australia's latest consumer price index inflation grew less than expected in October as government subsidies helped lower energy expenses, although core inflation rose further above the central bank’s target range. The RBA only expects inflation to fall within its 2% to 3% target range by 2026.
The RBA held rates steady at a 12-year high of 4.35% in its November policy meeting , and any upcoming meetings and economic data will be closely watched as markets assess the trajectory of monetary policy heading into 2025.
Westpac also recently pushed back expectations of a RBA cut to May, from February.