Australian economist questions Reserve Bank rate cut decision

A leading Australian economist remains unconvinced the Reserve Bank of Australia should cut rates when it meets in February despite calls for the central bank to move on rates.

Talking to Sky News, Judo Bank chief economic adviser Warren Hogan says there is less than a 50 per cent chance of the RBA cutting rates when it meets on February 17-18, claiming "the economic case is not there".

"We've seen a big improvement in consumer sentiment late last year, the tax cuts have finally got some traction," he said.

"The jobs growth is now showing low retail sales, and the big one was the rise in job vacancies from already high levels.

"This is all telling us that the economy is actually improving, and that's the reason there's a question mark on whether inflation will get down into the target band and stay there."

Mr Hogan said we should learn the lessons from the US, which raised rates faster than Australia before starting a rate-cutting cycle that has recently been paused on inflation fears.

"If you look at what's happening in the United States, the fact that they held on cutting rates further overnight highlights this point," he said.

"The reason they did it, despite expectations from just a few months ago that they were going to take the federal funds rate down another 100 basis points, if not more, is because inflation stopped falling and the economy is showing resilience, and there's job growth, unemployment slow, so this is the same situation we have here."

Mr Hogan's call follows the trimmed mean inflation falling to 3.2 per cent, down from 3.5 per cent in the September quarter.

This beats the Reserve Bank's forecast for Australia's trimmed mean inflation to come in at 3.4 per cent for the 12 months until December and 0.7 per cent for the final quarter of the year.

Disagreeing with Mr Hogan, Westpac updated its forecast for a rate cut in February following Wednesday's lower-than-expected inflation figures.

Now, three of Australia's big four banks are expecting a rate cut in February.

Westpac chief economist Luci Ellis says a rate cut "is on", pushing forward by three months her prediction that the Reserve Bank will cut the official cash rate from 4.35 cent.

Ms Ellis, who was formerly the RBA assistant governor economics, said the good news on inflation beat the stronger news on the labour market, with the RBA looking for unemployment to rise slightly to tame inflation.

"With trimmed mean inflation at 0.5 per cent in the quarter (3.2 per cent year), 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," she said.

Money markets are factoring in a greater than 75 per cent chance of a rate cut in February.