Westpac has changed its call for when the Reserve Bank will start cutting interest rates, declaring mortgage relief will start in February.
After today’s better-than-expected inflation result, which showed headline and underlying inflation falling to three-year lows, Westpac chief economist Luci Ellis said the RBA was now likely to slice the cash rate at its February 17-18 meeting.
Westpac had pushed back its expectations on a rate cut to May.
Westpac chief economist Luci Ellis. Credit: Janie Barrett
But Ellis, a former RBA assistant governor, said this afternoon that the inflation numbers gave the Reserve the reason to start cutting.
She said there was now “just enough evidence” to suggest prices would fall faster than the RBA had been expecting.
“When we changed our call back in November to a start date of May 2025, we nonetheless assessed that a February move could not be ruled out,” she said.
“It was a matter of what was the most likely outcome, not what the only possible outcome was. The better-than-expected inflation data tilts the balance of probabilities back in February’s favour.”
A key issue for the Reserve Bank has been the strength of the jobs market with the unemployment rate at 4 per cent and more than 440,000 jobs created through 2024.
Ellis said ultimately the inflation figures would drive the bank’s thinking.
“In the end though, the good news on inflation beats the stronger news on the labour market,” she said.
