RBA interest rates: Borrowers could be waiting until at least May for relief, says UBS

A major investment house has punted back its prediction of when the Reserve Bank will lower interest rates, as some economists warn there’s a chance a cut may not come at all.

UBS has pushed back its forecast for rate relief by three months, from February to May, reversing a call made just two months ago.

The bank pointed to comments by RBA governor Michele Bullock on Tuesday which it said were more hawkish — talking tough on prices and interest rates — than expected.

Ms Bullock’s central bank board left the official cash rate unchanged at 4.35 per cent at the November meeting and released projections showing inflation would not return to the middle of its 2 to 3 per cent target band until late 2026.

A booming jobs market and high cost pressure in the services sector were slated as key reasons why the RBA was unwilling to rule out a hike.

UBS zeroed in on Ms Bullock’s view that financial markets were roughly on track with their forecasting of interest rates, implying a cut could be delayed until May.

“We still see the RBA lagging the easing cycle of other major global central banks,” the report authored by UBS economist George Tharenou said.

“Previously, we flagged the risk of an even later start to the RBA cutting rates.”

When the central bank does move, UBS expects slow going, with a 25 basis-point cut just once per quarter.

The report also predicted further cash splashes by governments ahead of a Federal election next year.

That comes after the RBA admitted it had been forced to repeatedly up forecasts of public spending in the past year as governments at all levels unleashed the purse strings.

Ms Bullock was more cautious in her comments.

She said public demand was offsetting weakness in the private sector — and that the impact of policies on inflation was front of mind for Treasurer Jim Chalmers.

On Tuesday, HSBC stuck with its prediction the RBA will give borrowers relief in the June quarter.

But the bank said there was a rising chance rates won’t be lowered at all in this cycle, now roughly one in four.

“We see an increasing risk that it takes even longer for cuts to be delivered, or that the RBA misses the easing phase altogether,” the report authored by Paul Bloxham said.

“This could come about because domestic inflation continues to fall only very slowly or because, by the time domestic inflation has eased sufficiently, the global economy is already re-inflating.

“Although not our central case, we ascribe a 25 per cent chance to the possibility that the RBA does not cut its cash rate at all in 2025.”

Analysis by The West Australian earlier this week showed real interest rates — adjusting for inflation — were lower than most of the G20 big economies.

That’s because the RBA was more cautious in tightening but is a sign the central bank could also act more slowly on the way down.

Markets give a 62 per cent chance of a February rate cut, down from nine in 10 on Monday.