February interest rate cut looking more and more likely, but experts say it's not a sure-fire bet

Economists are increasingly confident that mortgage holders and small businesses will finally get some long-awaited interest rate relief in just a few weeks.

Yesterday's consumer price index data for the December quarter, which showed headline inflation falling to 2.4 per cent and the Reserve Bank's preferred underlying measure dropping to 3.2 per cent, led to a surge on the Australian stock market.

The ASX200 closed at 8447 points, up 0.57 per cent for the day and within touching distance of a record high as investors capitalised on the increased likelihood of a lower cash rate next month.

READ MORE: Surprise inflation figures boost chance for interest rate cut in February

The market is now pricing in a 92 per cent chance of a cut on February 18, up from 84 per cent before the ABS's inflation data.

It was also enough for Westpac to change its rates call.

The big four bank had previously predicted a cut wouldn't be coming until May, but it's now brought that forecast forward to February.

"We have just enough evidence to conclude that disinflation has proceeded faster than the RBA expected, so the board will have the required confidence to start the rate-cutting phase in February," chief economist Luci Ellis, who herself presented to the RBA board as assistant governor as recently as late 2023, wrote yesterday.

"When we changed our call back in November to a start date of May 2025, we nonetheless assessed that a February move could not be ruled out.

"It was a matter of what was the most likely outcome, not what the only possible outcome was.

"The better-than-expected inflation data tilts the balance of probabilities back in February's favour."

That now leaves NAB as the lone member of the big four still banking on a May cut, although Ellis and others who are expecting a move in February say there's still a decent chance of what would be the 10th hold in a row.

"Moving now would represent a further pivot in the RBA's view of the economy, following the pivot at the December meeting," Ellis wrote.

"We therefore cannot completely rule out that the board (and the staff) dig in on their assessment that the demand is still outstripping supply, and keep rates on hold.

"The run of inflation data of late makes such an assessment even harder to justify, though."

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AMP deputy chief economist Diana Mousina had a similar assessment.

"Some will argue that the labour market is holding up in Australia as the unemployment is 'only' at 4 per cent," she said.

"However, wages growth has slowed while the labour market has remained robust so the low unemployment rate is not a threat to the inflation outlook.

"And the poor GDP growth (especially per capita) and poor consumer spending argues the need to support the economy.

"We think the RBA will opt to cut the cash rate by 0.25 per cent at the February meeting."

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