The Point

Steve Campbell: RBA ‘well-positioned’ to ease rates more aggressively

Monetary policy settings remain restrictive in Australia even after two rates cuts this year, says Pendal’s head of cash strategies Steve Campbell.

Last week the Reserve Bank cut 25 basis points to 3.85%.

A pause in US tariffs and a plethora of other headlines saw the case for a larger cut diminished, says Steve.

“Domestically the RBA remains comfortable with the inflation outlook and where policy settings are at,” he says.

“There are signs that the rate cut earlier this year is helping households, though the majority of the cut is being saved – not spent.

“We maintain the view that two more cuts are forthcoming, likely around the quarterly cycle in August and November.”

Meanwhile bonds continue to offer good defensive value in this environment, Steve says.

“And uncertainty surrounding international events ensures plenty of opportunity for active managers.”

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Pendal profile: Meet our head of cash strategies Steve Campbell

Steve Campbell: Labour data will determine timing of next RBA rate cut

A strong labour market and poor productivity meant the RBA’s rate-cut this week was not a laydown misere.

Was it a “one and done?”

“That’s highly unlikely,” says Pendal’s head of cash strategies, Steve Campbell. “So the focus will now move to when the next policy easing will occur.”

Before the next meeting in April (the first with newly separated monetary and governance boards), we will see updated wage price index data and two labour market reports.

If we don’t see a cut in April, further policy easing could still occur mid-year, Steve says.

The RBA remains “cautious and data dependent”, and didn’t give away much in its notes this week.

“Forecasting trimmed mean inflation at 2.7% until mid-2027 really means we don’t know how it will all unfold.”

Steve Campbell: Aussies aren’t likely to see another rate change this year

Steve Campbell: The call for rate cuts appears premature

CALLS for rate cuts in 2024 now appear premature based on first-quarter inflation data.

Headline inflation rose 1% over the first quarter, resulting in annual inflation of 3.6%. Economists had been expecting a quarterly rise of 0.8% and 3.5% over the year.

The RBA’s preferred inflation measures – the trimmed mean and weighted median – also exceeded expectations by 0.2% for the quarter, rising 1% and 1.1%, respectively.

After moving to a neutral statement in its March meeting, it’s likely the RBA will take a more cautious, hawkish tone in its next statement in May.

That meeting will be accompanied by a monetary policy statement with updated economic forecasts.

From its February forecasts, the RBA sees annual headline and trimmed mean inflation for the year ending June 2024 at 3.3% and 3.6%, respectively.

Headline inflation has risen 2.77% since June 2023 and a trimmed mean of 2.95%. For the RBA’s forecasts to be realised, we need 0.48% and 0.6% for the next quarter.

Inflation forecasting is a tough caper, but if these annual forecasts were to be revised, they would more likely be higher than lower after today’s data.

Steve Campbell: Rate cuts unlikely before November

There were no surprises on Tuesday with the cash rate left unchanged at 4.35%.

Though the RBA’s statement was more neutral than February, which prompted a rally in bond yields, notes Pendal’s head of cash strategies Steve Campbell.

Where to next?

“Inflation is falling in line with the RBA’s expectations,” says Steve. It’s expected to hit the 2-3% target zone next year and keep falling in 2026.

The RBA could ease policy before then if inflation is falling sustainably. Though services inflation remains elevated, moderating only gradually.

Any rate change is likely to come at the same time as economic forecasts in the RBA’s quarterly monetary policy statement, says Steve.

The RBA can use those forecasts to justify a change in monetary policy settings or tone.

Forecasts are due in May, August and November.

“Any change to the cash rate is not going to happen in the nearer term,” argues Steve.

“November is more likely than August for any policy easing at this stage.”