Reserve Bank: ANZ punts back hopes of an interest rate cut to May

ANZ has punted back its prediction for when the Reserve Bank will cut interest rates, thanks to the strong jobs market and rising consumer confidence.

The bank now reckons borrowers will be waiting until May for relief, three months later than previously thought.

The move adds ANZ to the deluge of forecasters shifting back their predictions. Citi, NAB, Westpac and RBC Capital are all expecting rates to drop in May.

Commonwealth Bank has so far stuck to February and believes the jobs market is weaker than widely thought.

RBA boss Michele Bullock was still talking tough about inflation on Thursday night, reintroducing her warning borrowers should not expect a cut “in the near-term”.

She has been forced to talk down expectations of relief since August, when a brief panic on financial markets sparked calls for the RBA to slash rates. The bank wants to play down hopes of a cut to ensure borrowers don’t get ahead of themselves and lift their spending, which would push up inflation.

ANZ chalked up the latest delay to the strong jobs market, business sentiment and consumer confidence lifting following the Stage 3 tax cuts.

“The RBA’s tone also remains on the hawkish side,” ANZ’s top economist Adam Boynton said in a Friday note. That means the Reserve is still focused on slowing inflation rather than boosting spending.

“At turning points, we should focus more on what the RBA should do rather than its rhetoric, but we had expected a more neutral tone by now,” he said.

“With the board still focused on the level of demand exceeding supply, our forecast for six-month annualised trimmed mean inflation to fall just within the RBA’s target band by the February meeting is no longer looking like enough.”

But he said a February cut could not be ruled out, especially if the jobs market slows or inflation falls more than expected.

It comes on the same day as a Black Friday sales season expected to boost retailers — with ANZ previously predicting about $1.5 billion to move through the tills.

The retail bonanza will be a major test of whether the Federal Government’s stage three income tax cuts have flowed through to spark higher spending.

Research by Westpac has so far showed consumers are saving plenty of the extra cash received since July.

This week, headline inflation posted a second month at an annual growth rate of 2.1 per cent.

Yet the numbers will be disregarded by the RBA due to the influence of temporary factors including power bill rebates and falling fuel prices.

Ms Bullock said on Thursday her bank would focus on the underlying rate of inflation — stripping out volatility — to get a better idea of where price rises would land in the medium term.