Westpac warns that Reserve Bank of Australia could be waiting too long to cut rates

Westpac has delayed its target date for interest rate cuts and warned the RBA may be taking too long to move.

The big four bank now reckons borrowers will be waiting until May 2025, revising its previous guess of February.

It has joined a growing club of commentators punting back forecasts in recent days including NAB, RBC Capital and Citi.

But the majority view is that the RBA will cut by March, according to a survey of 45 economists by Bloomberg published this week.

Financial markets imply about an 80 per cent chance of relief by May — when a Federal election likely to be fought on the economy is due.

Consumer confidence is improving and the jobs market is “unexpectedly robust”, Westpac chief economist Luci Ellis said on Thursday.

The factors would make the RBA reluctant to lower rates as it closely watches inflation.

“The RBA’s forecasts hang crucially on a relatively bullish view of the potential for consumption growth to pick up as inflation declines and real incomes recover,” Ms Ellis said.

That means spending is expected to rise as cost of living pressure eases for households.

Westpac sees it differently, tipping a “more modest recovery” because July’s stage three tax cuts had so far only generated a “subdued response”.

Ms Ellis warned that the RBA’s stance may be too aggressive.

“The RBA’s view of the economy looks somewhat more hawkish than we think is warranted,” she said.

“The longer the RBA Board waits, the faster they will need to move thereafter, as it would then be more likely that they have hesitated too long.

“If employment growth slowed even moderately, things could unravel quite quickly.”

Australia’s jobs market has been booming with more than 400,000 roles created in the year to September. Unemployment has also stayed low at 4.1 per cent.

It has been helped by a record number of Aussies either in work or looking for work. But the pace may be difficult to sustain.

Westpac’s boffins were also worried about the role of public spending in driving demand — yet not for the same reason many other economists have rung the alarm.

“This will not last forever. When the outsized growth in this area does eventually fade, it will take time for other sectors to recover in compensation,” Ms Ellis said.

“Australia could end up with an extended period of lacklustre growth.”

ANZ was less pessimistic this week.

The bank said there were signs in the minutes that the RBA was shifting towards rate relief, retaining their prediction of a February cut.

“We see the minutes containing some guarded references which could imply the board is opening the door to a policy easing,” it said on Tuesday.

“That said, any easing in early 2025 would likely require a moderation in trimmed mean inflation (which we expect).”