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    • Will the RBA finally cut interest rates?
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    Will the RBA finally cut interest rates?

    Umito Posted on

    As Australians grapple with the cost of living and cut spending on essentials under the pressure of rising interest rates, there is one main message being sent to them.
    In recent years, the Reserve Bank of Australia (RBA) has emphasized that in order to reduce interest rates, inflation must be within a range of 2 to 3 percent.
    Last week it happened.
    marking the first time in three and a half years that it has been below 3 percent.
    Does this mean the RBA will cut rates as soon as Tuesday, after its monthly board meeting?

    This is highly unlikely. Here’s why.

    Inflation has fallen within target range, so why no rate cuts?

    Sally Tindall, director of data analysis at financial comparison site Canstar, said the inflation rate is not what it seems.
    “This figure is largely based on smoke and mirrors created by temporary electricity rebates and volatile gasoline prices,” she said in a statement.

    “Any hope of a drop in cash interest rates in 2024 is now well and truly dead.”

    The RBA’s preferred inflation measure is ‘trimmed average inflation’ – which is the underlying inflation rate which reduces the effect of irregular or temporary price changes which may impact the inflation index. consumer prices – in this case, electricity and automobile fuel.

    Excluding these factors, as well as other significant rises and falls in prices, reduced average annual inflation stood at 3.5 per cent, compared with 4.0 per cent in the June quarter, according to the Australian Bureau of statistics.

    When is the first rate cut expected?

    And that figure is still too far out of striking range for the RBA to change course, Tindall said.
    Economists at Australia’s big four banks – Commonwealth, Westpac, NAB and ANZ – predict the RBA could cut rates by 0.25 percentage points in February 2025.
    They also plan a total of four reductions by the end of 2025.

    However, the markets do not factor in a first decline before April 2025.

    Chart showing interest rate increases in Australia.

    A chart showing how interest rates in Australia have increased. Source: SBS News

    My Bui, an economist at AMP, predicts three rate cuts next year.

    “(Core) inflation won’t return to the target range until the middle of the third quarter… So, without a recession, (the RBA) is unlikely to be in a hurry to cut rates sharply.”

    Additional reporting from Reuters.

    Umito
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