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Welcome to Bendigo Bank’s market update for March, with the latest insights on the economy, financial markets and what they mean for you.
This month, we’ll discuss;

• the path ahead for official interest rates;
• the latest news on geopolitics and tariffs;
• and the outlook here for labour markets.

As forecast in last month’s update the RBA easing cycle is now underway, with underlying inflation continuing to moderate both in the 4th quarter data from 2024, and also evidenced by the latest monthly indicator, with the Trimmed Mean in January remaining around 2 ¾ %. Market pricing now matches our forecast of 2 more rate cuts, taking the cash rate down to around 3.6 % by year-end… although RBA Governor Michele Bullock went to great lengths to temper expectations of more imminent rate cuts. We continue to expect a relatively shallow easing cycle and agree with the RBA that it would be foolish to rely on an April 1st cut (when they next meet) however the next quarterly CPI data out on April 30th should reveal more evidence that inflation is slowing, hopefully allowing a second rate-cut on May 20th.

Our base case forecasts centre on a steady improvement in GDP growth in 2025 (building on this week’s data showing that we are out of the per-capita recession) 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 on Canada, Mexico and China have just commenced, and beyond the uncertainty of what other tariffs may be imposed (and whether Australia will be exempted from them) the geopolitical landscape is remarkably complex and fast-moving.

As a result, any forecasts need to consider upside and downside scenarios, including the indirect impact of trade tensions on our largest trade partner China. Chinese fiscal support and targeted stimulus measures have proved successful thus 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.

Other complications for the RBA in continuing its easing cycle (which will greatly influence the markets through the year) include:

• 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, and
• 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’ 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.

And lastly, 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… again consistent with our expectation of a shallow RBA easing cycle this year.

And that’s the market update from Bendigo Bank.