Reserve Bank of Australia chief Philip Lowe said the coronavirus is having a 'significant'effect' on the country's economy
Reserve Bank of Australia chief Philip Lowe said the coronavirus is having a 'significant'effect' on the country's economy

A leading economy forecaster has warned that Australia's households will remain under pressure for a while, as it is likely the Reserve Bank of Australia (RBA) will cut interest rates only by the second quarter of next year.

Oxford Economics Australia's predictions come as the RBA continues to maintain its current stance since November 2023, keeping rates at 4.35%, Sky News reported.

The delay in the rate cuts will surpass the late 2024 timeline anticipated by major banks like Commonwealth.

"Given the RBA's hawkish rhetoric, we don't see rate cuts coming until the second quarter of 2025," Oxford Economics Australia head of macroeconomic forecasting Sean Langcake said ahead of the research firm's biannual economic outlook.

As the wait for interest rate relief drags on, households and businesses are bracing for a prolonged period of high borrowing costs. Australia's economy is experiencing a complex mix of "strong cross currents," with conflicting trends of growth and inflation, posing challenges for policymakers to cut interest rates, said Langcake.

"The labor market has defied a marked slowdown in activity, which is testing the RBA's very patient approach to bringing inflation back to its target," he said, ahead of the research firm's biannual economic outlook, according to News.com.au.

"Concurrently, a significant easing in fiscal policy will give the economy a boost, which is welcome for households, but less so for inflation hawks."

Although total inflation is likely to reach the high end of the RBA target range by late 2024, interest rates are expected to remain unchanged for the foreseeable future.

The RBA had embarked on a steep rate-hiking cycle to stem the inflation rate from May 2022, with the cash rate rising from 0.1% to 4.35% in November 2023. Governor Michele Bullock has stated that the board will require convincing proof that inflation pressures are reducing before considering lowering rates, which are presently on hold.