Rate cut peer pressure may crack Bullock’s resolve

Compelling calls for an interest rate cut off the back of yesterday’s inflation figures are set to test how resolute the Reserve Bank of Australia (RBA) will be in keeping to its promises.

December quarter data from the Australian Bureau of Statistics yesterday confirmed headline inflation is continuing to stick within the bank’s 2-3% target while core inflation – now 3.2% – is lowest it’s been for three years.

Though outside the RBA’s target, 3.2% is ahead of where the RBA had forecasted for the Australian economy on the landing path to stabilising inflation.

This success, coupled with the clear positive trajectory of headline inflation, has many suggesting the door to a February rate cut is wide open despite the RBA governor Michele Bullock’s insistence that she will remain restrictive until lower inflation is consistent in Consumer Price Index data.

Treasurer Jim Chalmers was quick to lead the charge on positive commentary on the ABS figures yesterday, saying the findings are “better than expected and better than forecast”.

“The worst of the inflation challenge is well and truly behind us,” he said in a statement. “The soft landing we have been planning and preparing for is looking more and more likely.”

Mr Chalmers’ positive note comes against the backdrop of costly public spending and stagnancy in the private sector in 2024 however, topics which have been central pillars in Ms Bullock’s arguments against cutting rates prematurely.

The governor has also warded off comparisons to overseas economies in recent months, arguing Australia’s position will not be influenced.

The country’s inflation is now lower than both the United Kingdom and the United States but Ms Bullock’s caution has proven to be on the money; both nations cut rates in the second half of 2024 and both are already feeling the pinch from rising inflation once again.

“Many countries around the world have paid for progress on inflation through higher unemployment or lower economic growth,” Mr Chalmers agreed. “We’ve been able to preserve the gains we’ve made in our labour market at the same time as we’ve got inflation down.”

“We are confident but not complacent about the year ahead,” the treasurer added. “On every measure, we’ve made substantial and sustained progress in the fight against inflation.”

Confidence is also pulling through to homeowners, who have struggled through 13-year high cash rate levels of 4.35% for more than a year.

ACTU secretary Sally McManus is among those calling on the RBA to refrain from holding off on a rate cut. Picture: ACTU

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“There’s been so much discussion about home loan interest rates coming down soon that it’s motivating my clients to put their plans into action,” Melbourne-based Mortgage Choice broker Josh Almond said.

“They’re feeling more confident and want to understand their borrowing power so they’re ready when they find the right property.

Australian Council of Trade Unions secretary Sally McManus said the current inflation figures “should mark the end” of high rates.

While Ms Bullock has been adamant that she will not cut rates until a “sustained” period of in-target core inflation has played out, Ms McManus agued the bank has “more than what it needs to deliver an official interest rate cut”.

Ms McManus is calling for cuts to begin from next month.

“Any further RBA hold out will only add to the pressure on working families. Mortgage holders and renters need the RBA to clear the way for significant interest rates relief,” she said.

A cut on 18 February “is now the most likely outcome” for Ms Bullock’s actions, Bendigo Bank chief economist David Robertson estimates.

“Both headline and core inflation were 0.1% lower than consensus,” he added.

Ms McManus warned waiting beyond next month “would clearly tip the economy into negative gear”.

“The RBA has been wrong on wages. They’ve been wrong on unemployment and inflation. We don’t them to be wrong again,” she said.

RBA governor Michele Bullock is facing increasing pressure from all sides to announce a rate cut. Picture: Martin Ollman

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Real Estate Institute of Australia (REIA) president Leanne Pilkington agreed it was “reasonable to expect a rate cut is imminent”.

 “This would provide a welcome relief for borrowers and improve affordability for first home buyers,” she said.

Each drop in interest rates by 0.25% monthly repayments would decrease by around $100, the REIA estimates.

The proportion of family income required to service a loan would also drop by one percentage point from the current historically high level of 48.6%.