Bendigo Bank's March Economic Update

Key takeaways:

• May firms for next cash rate cut
• Employment growth powers ahead
• US tariffs in force, global outlook increasingly opaque.

Following the RBA’s February cash rate cut, anticipation is now building over when it will make its next move. With deliberations set against an increasingly complex global backdrop, Bendigo Bank’s Chief Economist David Robertson outlines what’s next for rates, labour markets and geopolitics.

Two more rate cuts on the horizon – but don't be fooled by April

With the RBA’s easing cycle now underway, and with underlying inflation continuing to moderate, more interest rate cuts are likely this year, Mr Robertson said.

“Market pricing now matches our forecast of two more rate cuts, taking the cash rate down to around 3.6% by year-end,” he said.

However, homeowners may need to wait a little for the next cut.

“We continue to expect a relatively shallow easing cycle, and agree with the RBA that it would be foolish to rely on an April 1 cut (when they next meet), however the next quarterly CPI data out on April 30 should reveal more evidence that inflation is slowing, allowing a second rate cut on May 20,” Mr Robertson said.

“Our base case forecasts centre on a steady improvement in GDP growth in 2025 and cost of living pressures subsiding as inflation moderates, further helped by RBA rate cuts and last year’s tax cuts, but the global backdrop remains as unpredictable as ever.”

US tariffs now in force, global outlook increasingly opaque

US tariffs on trade with Canada, Mexico and China have just commenced, and beyond the uncertainty of what other tariffs will be imposed (and whether Australia will be exempted from them) the geopolitical landscape is remarkably complex and fast-moving, Mr Robertson said.

“Any global forecasts need to consider upside and downside scenarios, including the indirect impact of trade tensions on our largest trade partner China,” Mr Roberston said.

“Chinese fiscal support and targeted stimulus measures have proved successful so far and more policy support is expected, while exchange rates are also likely to play their part in offsetting tariffs.

“But the further down the horizon we look, the more opaque the outlook becomes, and stock markets are also looking more cautious as the broader impact of tariffs takes shape.”

The RBA’s easing cycle: It’s complicated

Mr Robertson said there are three key complications for the RBA in continuing its easing cycle (which will greatly influence the markets through the year):

The recent pick-up in retail sales, up another 0.3% in January as consumers become more confident about the outlook

Ongoing public spending at a state and federal level, ahead of impending elections

The resilience of labour markets, with employment growth still powering ahead.

“As the RBA minutes noted, the strongest case for not cutting rates last month was continued tightness in labour markets although the minutes also noted that ‘there was possibly more capacity in the labour markets than previously judged’,” Mr Robertson said.

“So, while we continue to forecast a slightly higher unemployment rate, this may not be a pre-requisite to the two more cuts we expect later this year.”

House prices strengthen

There have been some recent signs of strength in the housing market, Mr Robertson said.

“Residential property prices rebounded by 0.3% in February, no doubt helped by the rate cut, but more importantly rental costs and construction costs for new dwellings have decelerated noticeably, again consistent with our expectation of a shallow RBA easing cycle this year,” Mr Robertson said.

Watch David Robertson’s March Economic Update