Market Reaction to Latest CPI Data
Financial markets experienced a downturn last week after the latest consumer price index (CPI) results indicated that inflation remains stubbornly high. With a 1% rise reported for the March quarter, annual inflation now stands at 3.6%, overshooting the Reserve Bank of Australia’s (RBA) preferred target range.
Interest Rate Cuts: A Distant Possibility?
The ASX 30 day interbank cash rate futures for May indicate that expectations have shifted, with the probability of an interest rate cut in the near term effectively falling to zero. Futures markets are now forecasting that a rate reduction may not be considered until March or April 2025.
Contrasting Views from Economists
- Westpac’s Perspective: Despite aftermarket expectations, Westpac’s economics team maintains a somewhat dovish stance, suggesting a potential rate cut later in the year, albeit delayed from their initial forecast.
- Judo Capital’s Forecast: Warren Hogan of Judo Capital envisions not a cut but a series of rate hikes, based on his interpretation of the central bank’s current monetary policy ineffectiveness.
Implications of Persistent Inflation
With inflation exceeding targets and mixed signals from financial institutions and economists, there is an air of anticipation on how the RBA will navigate these choppy waters. While the debate on future rate movements is multifaceted, the bank’s actions will play a crucial role in Australia’s economic trajectory over the next year.
Final Outlook for Borrowers and Investors
Investors and borrowers alike are keenly awaiting the RBA’s next steps. With expert opinions divided, it remains to be seen whether the RBA will stick to its course or adapt its monetary policy to meet the challenges posed by persistent inflation and global economic pressures.