Australia's Inflation Stabilizing... Is a February Interest Rate Cut Possible?

Australian inflation is stabilizing near the Reserve Bank of Australia (RBA)'s 2-3% target range, but strong employment, high government spending, and a declining Australian dollar value suggest that a rate cut in February is unlikely.

Reserve Bank of Australia (RBA) (Photo by Jeong Dong-cheol)

On the 29th (local time), The Australian daily newspaper cited an economic report from global accounting firm Deloitte released that day, stating that although conditions for a rate cut have been met, the rapidly changing global economic situation makes it likely that the RBA will take a more cautious approach at its February monetary policy meeting.

The report forecasted that Australia's economic growth rate will rise from 1% in 2024 to 1.6% this year and 2.3% next year. The unemployment rate is also expected to increase to 4.4% by the end of this year, and core inflation excluding volatile items is projected to fall to 2.6%. Overall, the Australian economy is expected to improve only by 2025. Nevertheless, sufficient housing construction is not taking place, so the housing shortage is unlikely to be resolved easily. Regarding the cash rate, it is expected to fall from the current 4.35% to 2.85% by the end of next year.

Federal Treasurer Jim Chalmers said, "If headline inflation remains in the 2% range, it means inflation has dropped to less than half compared to when the Labor Party was in power," adding, "The economic soft landing we have been pursuing is increasingly becoming a reality." He expressed confidence, saying, "Inflation is stabilizing, wages are rising, and unemployment is low. Over 1.1 million jobs have been created, and economic growth will accelerate further this year."

Peter Dutton, Leader of the Liberal Party of Australia (Photo by the Liberal Party of New South Wales (NSW), Australia)

Opposition Leader Peter Dutton warned, "High government spending is hindering the RBA's goal of cutting interest rates," and added, "If the Labor government keeps pressing the accelerator while the RBA applies the brakes, it will inevitably lead to tragic consequences."

Dr. Shane Oliver, Chief Economist at comprehensive financial firm AMP, projected that core inflation will fall to 2.4% and headline inflation to 3.2% in 2024. He stated that if core inflation is around 3.3%, there is sufficient basis to implement a rate cut in February.

Dr. Oliver added that unlike core inflation, headline inflation is highly volatile and has been artificially lowered recently due to energy subsidy policies implemented by the federal and state governments.

Jung Dong-cheol, Hanho Times Reporter

※This article was written using content provided by Hanho Times (www.hanhotimes.com).