According to the OECD’s global economic outlook report, Australia’s official cash rate is expected to remain at 4.35 percent and then drop by 0.75 percent between the third quarter of 2024 and the end of 2025. The report suggests that the Reserve Bank of Australia (RBA) is unlikely to implement any more interest rate increases in 2024. The RBA is expected to maintain current rates until inflation shows signs of declining to the target range of two to three percent.
The OECD’s forecast is based on several factors, including a lower budget deficit in 2023 due to increased tax receipts from businesses and households. The report predicts a slowdown in economic growth for 2024 and 2025 as a result of certain policies. Additionally, the fiscal costs of Australia’s aging population and the transition to net zero are expected to create fiscal pressures for the government.
The report also stated that the government’s Energy Price Relief Plan could potentially reduce headline inflation by 0.75 percent by the second quarter of 2024. Furthermore, the report anticipated a rise in Australia’s unemployment rate and a slowdown in goods and services price growth as a result of declining global inflation pressures. The OECD advised the Australian government to raise revenue by reducing private pension tax breaks and broadening goods and services tax (GST).
While the OECD provided recommendations for addressing Australia’s fiscal pressures, Treasurer Jim Chalmers rejected these suggestions, stating that the government was not currently interested in them. Meanwhile, Westpac Bank, one of Australia’s major banks, reaffirmed its forecast that the RBA would keep the official cash rate unchanged in December. The bank’s economists noted that there was not enough evidence of an increase in inflation from economic data to prompt the central bank to take action.