Good news might be just around the corner for mortgage holders and small businesses! Economists are growing more confident that interest rate relief could arrive as soon as February, following fresh inflation data that has sent the stock market soaring.
Yesterday’s consumer price index (CPI) figures showed inflation dropping to 2.4%, with the Reserve Bank’s (RBA) preferred measure sitting at 3.2%. This better-than-expected result has fueled speculation that the RBA could start cutting rates in just a few weeks.
The stock market certainly liked the news—the ASX200 closed at 8447 points, up 0.57% for the day, nearing record highs as investors bet on lower interest rates. Right now, the market is pricing in a 92% chance of a rate cut on February 18, up from 84% before the inflation data was released.
Westpac Changes Its Tune
One of Australia’s big four banks, Westpac, has now brought forward its forecast for the first rate cut, shifting from May to February.
Westpac’s chief economist, Luci Ellis, who previously worked as an assistant governor at the RBA, said yesterday,"We have just enough evidence to conclude that disinflation has proceeded faster than the RBA expected, so the board will have the required confidence to start the rate-cutting phase in February."
NAB is now the only major bank still predicting a May cut, but even those expecting a February move say there’s still a chance the RBA might hold firm.
Could the RBA Hold Off?
Despite the optimism, some experts are cautious. Ellis notes that the RBA has been shifting its view on the economy, but they could still decide that demand is outpacing supply and keep rates steady for now.
AMP’s deputy chief economist, Diana Mousina, also weighed in, saying,"Some will argue that the labour market is holding up in Australia as unemployment is ‘only’ at 4%.
But she points out that wages growth has slowed, consumer spending is weak, and economic growth is struggling. Given all that, she believes the RBA will likely cut rates by 0.25% at the February meeting.
What’s Next?
For now, all eyes are on the RBA’s next move. If they do cut rates, it would be the first time in over three years. But until the final decision is made, nothing is guaranteed.
Stay tuned—February 18 could be a big day for Australian borrowers!
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