RBA to hold rates steady in August; first cut seen in early 2025: Reuters poll

By Devayani Sathyan

BENGALURU (Reuters) - The Reserve Bank of Australia will hold interest rates on Tuesday at near a 13-year high and wait until the first quarter of 2025 before reducing them, according to economists polled by Reuters, as price pressures remain elevated.

Inflation unexpectedly rose to a six-month high of 4.0% in May from 3.6% previously, triggering a flurry of speculation in markets that the RBA would raise rates.

But after inflation dipped to 3.8% last month, along with weaker-than-expected price pressures across the second quarter, that pricing was wiped out.

Still, with inflation well above the central bank's 2%-3% target range, the RBA will hold the official cash rate at 4.35% this year, according to the July 31-Aug. 1 Reuters poll.

All but one of 33 economists surveyed expected the central bank to leave rates unchanged on Aug. 6. The median forecast and majority view put rates on hold through the end of this year, unchanged from the previous poll.

In a survey taken before the June 18 meeting, more than 60% of economists had predicted at least one cut before the end of 2024.

No one forecast any change to rates at the September meeting in the latest poll.

"The Q2 inflation report almost certainly takes August off the table for a potential rate hike from the RBA. We still think the underlying strength in the economy is sufficient that they will have to maintain a bit of a hawkish bias," said Ben Picton, senior strategist at Rabobank.

"Up until (the) inflation report, it was our expectation they would hike rates in 2024. So we think a cut this year is probably a bridge too far. They won't do that," Picton said.

Among major local banks, ANZ, and NAB predict rates will stay unchanged through 2024, while CBA and Westpac see one cut before the end of this year.

Two-thirds of economists polled, 22 of 33, forecast no change to the key rate before 2025. Only 10 saw at least one 25-basis-point cut in the fourth quarter while one forecast it at 4.60%.

Market pricing showed a roughly 55% probability of a rate cut by the end of 2024, suggesting the RBA will lag the U.S. Federal Reserve, which is forecast to cut rates twice this year and four times in 2025.

"The view was always that the RBA was a reluctant hiker and it simply meant the official cash rate was going to be held higher for a lot longer relative to other developed markets," said Craig Vardy, head of fixed income at BlackRock Australasia.

"The path forward from here is going to be a very slow burn into 2025 ... We've got a terminal RBA cash rate at 3.60%. We've had that for quite a while, so that tells you three rate cuts and they're done."

Inflation was forecast to average 3.4% this year and 2.8% in 2025, a separate Reuters poll found. Median forecasts in the latest survey showed the RBA cutting rates by 75 basis points next year, putting the official cash rate at 3.60% by the end of 2025.

(Reporting by Devayani Sathyan; Polling by Veronica Khongwir; Editing by Jonathan Cable, Ross Finley and Paul Simao)