After February’s Reserve Bank of Australia meeting, RBA governor Michele Bullock doused anticipation of an imminent rate cut in 2024 – and indeed floated the possibility of no rate cut at all this year.
Since then, the economic data has broadly fallen into line with RBA expectations.
The latest quarterly CPI data showed inflation had slowed to 4.1% for the final quarter of 2023 with the monthly CPI indicator showing an annual rate of 3.4% as at the end of January.
The RBA has been adamant it needs inflation to drop to its target band of 2 to 3%.
But cash rate movements notoriously take several months to play out in the broader economy; some say years.
What are the signs?
The RBA must walk the line of bringing down inflation without tanking the economy.
Since the last, somewhat unexpected, rise in the cash rate in November 2023, there are numerous signs the economy is slowing.
The unemployment rate has risen to more than 4% for the first time in two years, discretionary spending is slowing, and economic growth is sluggish.
But at the same time, wages growth, led by public sector salaries, has climbed higher, effectively putting extra money into the pockets of consumers – not what the RBA likes to see when it’s on a tightening cycle.
The RBA board will also be keeping a close eye on the May federal budget with federal Treasurer Jim Chalmers already flagging cost-of-living relief measures to stimulate economic growth.
And this comes before the promised stage three tax cuts for low- and middle-income earners, taking effect in July.
AMP chief economist Shane Oliver is also suggesting the average 23% wage rise for aged care workers, announced on Friday, is another factor that may delay rate cuts.
Experts in agreement on rate hold
It’s little wonder analysts are almost in universal agreement there will be no move in the cash rate on Tuesday.
Some more hawkish market watchers are now even suggesting there will be no cash rate drop until 2025.
Currently, economists at the big four banks are sticking with their forecast interest rate drop in the second half of the year.
Commonwealth Bank and Westpac say the next cut will be in September, while NAB and ANZ say November.
US rate cuts further away
Meantime, analysts in the world’s largest economy, the US, have dialled down their forecast for rate cuts this year after higher-than-expected consumer and producer price figures last week.
The latest US data has dampened expectations of an interest rate cut in the US Federal Reserve’s June meeting, with inflation proving stickier than anticipated.
This month, central banks in Europe and Canada kept their cash rates on hold while the Bank of England is also expected to keep its rate on hold this week.
What to watch for in the RBA announcement
Analysts will be poring over the ‘vibe’ of tomorrow’s RBA announcement, assessing whether governor Michele Bullock demonstrates any softening in what was widely considered a hawkish stance following the RBA board’s first meeting for 2024 in February.
Bloomberg commentators expect Ms Bullock will maintain a "hawkish bias" in delivering a cash rate hold on Tuesday.
The RBA is due to make its announcement at 2:30pm, Sydney time, with Ms Bullock to hold her second of the new post-announcement media conferences an hour later.
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