RBA interest rates: Citi warns big spending elections would delay relief for borrowers

A fresh survey of economists has revealed most are still tipping an interest rate cut by March next year — but one investment bank has warned a big spending election would delay relief many months.

Bloomberg’s poll of 45 experts released on Wednesday forecast that the Reserve Bank will move early in 2025.

But the optimism is dwindling. On the same day, finance house Citi punted back its prediction for a rate cut by three months from February to May.

The bank joined NAB and RSBC Capital in thinking homeowners will be waiting six more months to pop the champagne.

Citi said minutes from the RBA’s November meeting showed the jobs market was in great shape and economic growth picking up.

Financial conditions also looked easier as consumers and businesses were borrowing more, a sign the RBA’s leash is not too tight even after an aggressive campaign to lift interest rates since 2022.

Citi reckoned the central bank would want to see two favourable results in quarterly inflation data before cutting the benchmark interest rate.

“Our own view is that rising household incomes, resilient employment and the likelihood of further fiscal stimulus will support a modest acceleration in real consumer spending going forward,” the investment bank said in a note.

Federal and State elections due next year also risked upsetting the apple cart as politicians chase votes through cash splashes and sugar hits.

“There is a risk, however, the first rate cut may not occur until at least August 2025,” Citi said.

“Fiscal policy may be more supportive of activity from two State elections and the Federal election, the latter (of) which is likely to be held in late May 2025.”

The public sector’s share of the economy has surged since the pandemic and annual Federal Government spending rocketed an eye-popping 42 per cent over the past five years.

ANZ was less pessimistic. The big four bank said there were signs in the minutes that the RBA was opening the door to lowering rates, retaining their prediction of a February cut.

Markets on Wednesday gave just a 9 per cent chance of a rate cut at the RBA’s December meeting.