The Point

Steve Campbell: Labour data will determine timing of next RBA rate cut

A strong labour market and poor productivity meant the RBA’s rate-cut this week was not a laydown misere.

Was it a “one and done?”

“That’s highly unlikely,” says Pendal’s head of cash strategies, Steve Campbell. “So the focus will now move to when the next policy easing will occur.”

Before the next meeting in April (the first with newly separated monetary and governance boards), we will see updated wage price index data and two labour market reports.

If we don’t see a cut in April, further policy easing could still occur mid-year, Steve says.

The RBA remains “cautious and data dependent”, and didn’t give away much in its notes this week.

“Forecasting trimmed mean inflation at 2.7% until mid-2027 really means we don’t know how it will all unfold.”

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Steve Campbell: Rate cuts unlikely before November

There were no surprises on Tuesday with the cash rate left unchanged at 4.35%.

Though the RBA’s statement was more neutral than February, which prompted a rally in bond yields, notes Pendal’s head of cash strategies Steve Campbell.

Where to next?

“Inflation is falling in line with the RBA’s expectations,” says Steve. It’s expected to hit the 2-3% target zone next year and keep falling in 2026.

The RBA could ease policy before then if inflation is falling sustainably. Though services inflation remains elevated, moderating only gradually.

Any rate change is likely to come at the same time as economic forecasts in the RBA’s quarterly monetary policy statement, says Steve.

The RBA can use those forecasts to justify a change in monetary policy settings or tone.

Forecasts are due in May, August and November.

“Any change to the cash rate is not going to happen in the nearer term,” argues Steve.

“November is more likely than August for any policy easing at this stage.”

Steve Campbell: A straight bat from the RBA

Those looking for near-term rate cuts from the Reserve Bank will be disappointed with the commentary around this week’s no-change decision.

The RBA retains a tightening bias, refusing to rule out a further increase in rates.

“It’s clear the RBA is not comfortable with where inflation currently sits,” says our head of cash strategies Steve Campbell.

“There have been some solid misses and revisions to the RBA’s forecasts in previous quarters that understandably weigh on their confidence.”

The RBA is responding to inflation – a backward-looking view of the economy, Steve says.

If it wasn’t for elevated inflation, the latest RBA monetary statement lays out an argument for easing to occur sooner rather than later, Steve says.

“This is what the market is looking at when it is pricing in the cash rate to be cut in Australia this year – that, and offshore markets that have priced in aggressive policy easing this year in the US, Europe and England.

“However, we still view any back-up in yields as a buying opportunity.

“The US is still likely to start cutting in May, and if it cuts at every meeting after, will hit 4% by the end of year. This would open up potential cuts later in the year for the RBA.”

Steve Campbell: No rate cuts – or rises – in 2024?

Aussies were spared further pain this week when the Reserve Bank left the cash rate unchanged at 4.35%.

In its statement, the RBA retained a tightening bias against an uncertain background.

While investors expect rate cuts offshore next year, Pendal’s head of cash strategies Steve Campbell sees our cash rate unchanged in 2024.

Q4 inflation is due out in late January, ahead of the next RBA meeting in February. Steve expects a headline rate of 0.8%, taking annual inflation to 4.2%.

“We can’t see how the RBA can achieve its end-of-year 4.5% forecast – and 0.3% would be a considerable miss.

“Inflation is likely to come down to 3.5% in 2024. But unless we see significant weakness, this will remain too high to warrant a rate cut.

“Though this won’t stop the market periodically pricing rate cuts in – opening opportunities to trade duration with a long bias into early 2024.”