RBA pressured to cut interest rates after cost-of-living update': 'Terrible'

The Reserve Bank of Australia (RBA) could be pushed to cut interest rates earlier than anticipated due to gross domestic product (GDP) figures. The Aussie economy grew by just 0.2 per cent for the June quarter.

The slow GDP growth was blamed on government spending and a fall in household spending thanks to the cost-of-living crisis. While the RBA has insisted that a rate cut won't be coming in 2024, economist Greg Jericho believes this latest data set could encourage it to bring forward its cutting schedule.

"I think these figures, if anything, are just maybe going to hurry that first cut on a bit," he told The Project.

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He said the "only reason" the economy is so slow is because of how interest rate rises since 2022 have impacted Aussies' hip pockets.

"Interest rate rises have prevented people being able to go out and spend on those things that they'd like to spend on when they're feeling kind of rich, you know dining out or going on a holiday," he said.

"Interest rate rises have slowed down our ability to spend, and that's caused these terrible figures."

The Australia Institute chief economist claimed the market is tipping at least four rate cuts in the next 18 months and predicts we could see mortgage relief later this year.

Are you struggling with your mortgage and want to tell your story? Email stew.perrie@yahooinc.com

How bad were the GDP figures?

According to the Australian Bureau of Statistics (ABS), a 0.2 per cent growth in GDP for a quarter is effectively its worst performance since the end of the 1990s recession.

For the year-on-year growth, seasonally adjusted, GDP was just 1.0 per cent.

“The Australian economy grew for the 11th consecutive quarter, although growth slowed over the 2023-24 financial year,” ABS head of national accounts Katherine Keenan said.

“Excluding the Covid-19 pandemic period, annual financial year economic growth was the lowest since 1991-92 – the year that included the gradual recovery from the 1991 recession.”

GDP per capita was down for the sixth consecutive quarter, falling 0.4 per cent.

Household spending fell 0.2 per cent detracting 0.1 percentage points from GDP growth.

While it wasn't good news, federal Treasurer Jim Chalmers urged Aussies to think long-term.

“Two-thirds of the OECD have seen their economy go backwards at least one quarter, so in the context of a really difficult global economic environment, any growth in our economy is welcome growth,” he told reporters.

“Now, without government spending or without government spending growth, there’s been no growth in the economy at all.”

Inflation still needs to come down to warrant a rate cut

The RBA has said time and time again that inflation is its key metric when deciding interest rates and while that number has been slowly falling, it's still far away from its 2 to 3 per cent target zone.

The ABS recently found the annual rate of headline inflation fell to 3.5 per cent in July, which is down from 3.8 per cent in June.

Trimmed mean inflation, which "smooths out the impact of temporary or irregular price changes", was also down to 3.8 per cent from 4.1 per cent in the 12 months to June, which is a significant drop from the three-decade high of 8.4 per cent at the end of 2022.

Sally Tindall, Canstar’s data insights director, recently said inflation was moving in the "right direction" but was "certainly not a green light to start cutting rates".

"While many central banks have already begun lowering official rates, or in the case of the US Fed, gearing up to do so, it's important to remember that Australia is running on a similar but different track," Tindall said.

“Our sensitivity to cash rate changes is one key reason for this."

When do the big four banks think interest rates will drop?

• Commonwealth Bank: November 2024

• Westpac: February 2025

• ANZ: February 2025

• NAB: May 2025

Commonwealth Bank is the only one of the Big Four banks still predicting a rate cut to come this year and stood firm on that forecast even after the RBA kept rates on hold at its August meeting.

“Overall we believe that if the economic data over the near term evolves in line with the RBA’s latest forecasts the cash rate will be left on hold until Q1 25,” the bank's head of Australian economics Gareth Aird said.

“But we continue to side with market pricing and think it more likely than not we will see an interest rate cut by the end of the year. That might look odd given the Governor’s recent comments and today’s minutes.”

- with NCA Newswire

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