When the Reserve Bank board meets on February 18 the most likely outcome is a pre-election rate cut of 25 basis points. I firmly predict that will be the result.
The time has come.
Home owners who have felt the pinch from a dozen rate rises since the last election will appreciate the shift in direction.
And more rate cuts are expected later in the year, as long as inflation doesn’t creep higher.
But that won’t happen until after the federal election.
Labor strategists will be weighing up whether or not a small one off cut before the campaign starts is enough to change its political fortunes.
At the moment inflation remains fractionally too high, but headline inflation is back within the RBA’s two-to-three per cent target range and underlying inflation is only just above it.
I firmly predict Reserve Bank Governor Michele Bullock and the board will slash interest rates at the February 18 board meeting
When you factor in the weak state of the Australian economy, alongside risks internationally (Trump tariffs being at the top of the list), the RBA won’t want to risk keeping rates too high and stalling an already struggling economy.
Businesses will welcome a cut almost as much as home owners.
Anthony Albanese’s government has been angling hard for rate cuts for a long time now, in the hope that they start before the election.
That wish should be granted on February 18, which could so excite Labor it may trigger an early election, cancelling the budget set down for late March.
An interest rate cut this month should also narrow the margin between the parties in the betting markets, which currently have the Coalition as favourites.
The PM and Treasurer know that a cut in interest rates is their best chance of reversing the downward trend in their polling.
Labor’s primary and two party votes are down and personal support for Albo has been haemorrhaging, despite the PM hitting the campaign hustings in January.
While we saw rate cuts in other countries last year, they stood still in Australia throughout all of 2024.
Home owners who have felt the pinch from a dozen rate rises since the 2022 election
As a consequence the government inappropriately started to publicly lash the RBA for its decision making.
It’s hard not to think that, too, will be on the board’s mind as it weighs up this month’s decision to cut the rate.
The February meeting is also the last one before board and structural changes announced by the Treasurer take effect.
When that happens it will be harder for the government to be critical of RBA decisions.
