(Bloomberg) -- Australia’s easing cycle will begin later and prove shallower than previously anticipated, ANZ Group Holdings Ltd. said after the Reserve Bank chief warned that core inflation is still too high to consider interest-rate cuts in the near term.
ANZ sees a first rate reduction in May, from February previously, and two rather than three cuts in total, according to a research note on Friday. It cited the RBA’s tone staying “on the hawkish side,” stronger jobs growth, business conditions holding up and consumer sentiment rising for the shift in forecasts.
Governor Michele Bullock said in a speech last night that there’s still some way to go before core prices return sustainably to the central bank’s 2-3% target.
“The word ‘sustainably’ is important because it recognizes that we need to look through temporary factors,” she said, pointing out that the RBA’s latest forecasts showed a “sustainable return” of underlying inflation to target would occur in 2026, after it came in at 3.5% last quarter.
Australia’s bonds slipped across the curve in early trading following Bullock’s hawkish comments, with the yield on policy sensitive three-year notes rising three basis points to 3.94%. Traders anticipate the RBA will begin easing policy in May, with two 25 basis point rate cuts priced for 2025, meaning ANZ is now in line with market expectations.
The RBA is a global outlier in its unwillingness to ease policy, with Bullock’s assessment coming at a time when the Federal Reserve, the Reserve Bank of New Zealand, Bank of Korea and others are already on the path of rate cuts.
ANZ’s Adam Boyton said that at turning points in the cycle, economists should “focus more on what the RBA should do rather than its rhetoric, but we had expected a more neutral tone by now.”
He said that with Australia’s economy demonstrating ongoing resilience, particularly the employment market, ANZ now sees rate cuts in May and August for a terminal rate of 3.85%.
The RBA has held its cash rate at 4.35% for the past year.
--With assistance from Matthew Burgess.
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