Case grows for interest rate cut
The case for an interest rate cut next Tuesday was boosted by continued weakness in private sector credit growth, according to figures released by the Reserve Bank.
Financial markets are pricing in a 41 per cent chance of a rate cut, the highest expectation since the RBA's decision in February to keep rates at 3 per cent.
The markets are also pricing in at least 50 basis points of cuts by the end of the year.
Private sector credit edged higher by 0.2 per cent in March, continuing a similar rise the month before and bringing growth over the past year to 3.2 per cent. The soft growth represented a "prolonged state of weakness" since the financial crisis, Westpac senior economist Andrew Hanlan said.
Business credit remained flat after falling 0.2 per cent in February, and increased 2.6 per cent over the past year. Housing credit performed the strongest, rising 0.4 per cent last month after a 0.4 per cent increase in February.
The tepid growth reflected continuing consumer and business caution about borrowing and spending, analysts said. At the same time, households and corporates maintained their preference for saving and stronger balance sheets.
"All components of credit are showing no sign of accelerating out of the range they have been in for the past six months or so," Citi economists Paul Brennan and Josh Williamson said, adding that they expected a 25 basis points rate cut in May or June.
Meanwhile, the National Australia Bank's quarterly ASX 300 business survey found conditions remained stable last month, in contrast to a minus-7 reading on NAB's wider quarterly business survey.
While the finance, business and property sector strengthened, retail and manufacturing weakened, the survey found.
A separate survey by credit data research group Veda released on Wednesday found that business credit demand slowed for the second consecutive quarter, the first time since 2010.
Rate cut expectations were bolstered by a lower-than-expected inflation rate in the first three months of the year and the highest unemployment rate since 2009 in March.
JPMorgan economist Ben Jarman said the Reserve was more likely to consider a rate cut at its June meeting after the release of April employment figures next Thursday and private capital expenditure expectation numbers on May 30.
Frequently Asked Questions about this Article…
Markets are increasingly pricing in a rate cut because recent economic data has softened: private sector credit growth is weak, inflation came in lower than expected in the first quarter, and unemployment hit the highest rate since 2009 in March. Those signals have pushed markets to price about a 41% chance of a cut at the next RBA meeting and at least 50 basis points of cuts by the end of the year.
Financial markets were pricing roughly a 41% chance of a rate cut at the next RBA meeting, the highest probability since the RBA left the cash rate at 3% in February, according to the article.
Private sector credit edged up 0.2% in March and is up 3.2% over the past year, but economists described the pace as a prolonged state of weakness. For investors, this suggests households and businesses remain cautious about borrowing and spending, which can weigh on economic growth and influence RBA policy decisions.
Business credit was flat in March after falling 0.2% in February and is up 2.6% year‑on‑year. Housing credit was the strongest component, rising 0.4% in March after a 0.4% increase in February. These trends show uneven demand across credit types, with housing holding up better than business borrowing.
The NAB quarterly ASX 300 business survey found conditions remained stable, while NAB’s wider quarterly business survey registered a minus‑7 reading. The ASX 300 survey showed finance, business and property sectors strengthened, but retail and manufacturing weakened. Separately, Veda reported business credit demand slowed for a second consecutive quarter — the first time that has happened since 2010.
Lower‑than‑expected inflation in the first three months of the year and a rise in unemployment to its highest level since 2009 in March have both strengthened expectations that the RBA could cut rates, as those indicators reduce pressure on the central bank to tighten policy.
Citi economists Paul Brennan and Josh Williamson expected a 25 basis‑point cut in May or June. JPMorgan economist Ben Jarman said the RBA was more likely to consider a cut at its June meeting after April employment figures and private capital expenditure expectation data are released.
Investors should watch upcoming monthly and quarterly data that could influence the RBA: April employment figures, private capital expenditure expectation numbers (due May 30), future private sector credit releases, inflation updates and unemployment statistics. Those releases were flagged in the article as likely to shape the timing and size of any rate cuts.
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