Why Aussies struggling with the cost of living crisis may have to wait longer for mortgage cuts

Australians struggling with the cost of living crisis may have to wait even longer for interest rate cuts.

The Reserve Bank is expected to leave the cash rate on hold at a 12-year high of 4.35 per cent when it makes its latest announcement on Tuesday afternoon.

But some economists now fear the next cycle of rate cuts won’t begin until 2025, considerably later than the big banks are forecasting. 

A Finder survey of 28 experts had seven of them predicting no rate cuts until at least next year, with the rest forecasting relief in coming months.

Independent economist Saul Eslake, the principal of Corinna Economic Advisory, said the Reserve Bank of Australia would take its time easing monetary policy, even if the US Federal Reserve began cutting rates in 2024.

‘The RBA has decided it is willing to tolerate inflation being above its target for longer than its ‘peer’ central banks are willing to allow inflation above their respective targets,’ he said.

Most economists are expecting rate cuts from mid-2024, following the April 24 release of inflation data for the March quarter. 

Economist Harry Murphy Cruise, from credit ratings agency Moody’s Analytics, said the RBA would wait until September to cut rates, after workers started receiving stage three tax cut relief.

‘The Reserve Bank Board will want to consider the impact of a third round of tax cuts that will take effect in July,’ he said.

‘While the cuts won’t derail inflation’s retreat, they will delay it.’

Monthly inflation data showed the consumer price index at 3.4 per cent in January, which is only marginally above the RBA’s 2 to 3 per cent target. 

But the more comprehensive quarterly CPI data had headline inflation at 4.1 per cent in December.

The Reserve Bank is not expecting inflation to fall to within its 2 to 3 per cent target band until December 2025, according to forecasts released in February. 

The RBA’s 13 rate rises in 18 months, between May 2022 and November 2023, have slowed the economy with gross domestic product expanding by just 0.2 per cent in the December quarter.

Australia’s annual growth pace of 1.5 per cent in 2023 was almost half the 2.7 per cent level of 2022, following the most aggressive rate hikes since 1989.

Australia hasn’t experienced a recession since the 2020 Covid lockdowns but it has been in a per capita recession since the March quarter of last year, where output per worker has been shrinking. 

The RBA will now meet eight times a year, instead of 11 as it did previously, and hold two-day board meetings.

A monetary policy decision is being announced at 2.30pm, Sydney, with Governor Michele Bullock to hold a media conference an hour later. 

ANZ head of Australian economics Adam Boyton said that while unemployment was at a two-year high of 4.1 per cent, a tight labour market could still add to inflationary pressures.

‘We expect the 2.30pm post meeting statement will again highlight risks that higher inflationary expectations become entrenched and that services inflation could remain sticky,’ he said.

‘We also expect the statement will still describe the labour market as tight based on the metrics the RBA is using.’