No rate cuts ‘any time soon’: McKibbin
“At turning points, it pays to be nimble,” Mr O’Donaghoe said.
“We were very surprised at how quickly the disinflation pulse gathered steam at the end of last year.
“Had we known in real time back in December where underlying inflation was sitting, our 2024 preview would have taken on a distinctly different tone.”
RBA to meet next week
The Reserve Bank board will meet for the first time this year on Monday and Tuesday, heralding a new regime that includes a two-day meeting and a press conference by governor Michele Bullock.
Market economists will be looking for any change in language around the board’s previous bias towards potential future tightening of monetary policy.
Citi economist Josh Williamson said he didn’t expect the RBA to make a dovish pivot and signal rate cuts any time soon.
“We suspect a combination of inflation falling below 3.5 per cent and the unemployment rate moving above 4 per cent would be needed before the RBA cuts.
“We expect these conditions to be met with data published in July, providing the bank with an opening to start cutting the cash rate target from August 2024.”
Professor McKibbin, who served on the RBA board between 2001 and 2011, took to social media to hit out at economists predicting imminent rate cuts.
“I am surprised that people expect interest rates in Oz to fall any time soon,” he posted on X, the platform formerly known as Twitter.
“If inflation falls to 2.5 per cent and a neutral real [after inflation] interest rate might be around 2 per cent given strong population growth and weak productivity growth.
“A neutral [nominal] policy rate is around 4.5 per cent.”
A neutral rate is where monetary policy is neither stimulatory, nor restrictive.
State premiers from Queensland, Western Australia and Victoria this week ramped up pressure on the RBA to start cutting rates, with Queensland’s Steven Miles arguing for a rate cut next Tuesday to ease cost of living pressures.
Mr Miles, a new premier, is facing an election in October.
Federal treasurer Jim Chalmers said on Friday the RBA was independent and he wasn’t troubled by state leaders having a view on interest rates.
“Most Australians have a view about interest rates and premiers and treasurers at the state level are entitled to express their view about that,” Dr Chalmers said.
“I’m not troubled by that. I’d be surprised frankly, if the Reserve Bank was troubled by that.”
