(Bloomberg) -- Australia’s Treasury is forecasting that inflation could return to the central bank’s target band before the end of 2024 — earlier than either the government or the bank previously predicted — as part of its upcoming budget.

Its outlook for the 2024/25 financial year remains at 2.75%, but the Treasury now expects inflation to fall within the RBA’s target band of 2% to 3% before the start of 2025, according to a statement released Sunday. 

It also expects inflation to dip faster than previously forecast in the financial year ending June 2024. It will revise its estimate to 3.5% in Tuesday’s budget, down from 3.75% in its December economic update. 

The Treasury’s outlook is significantly more positive than the RBA’s latest estimates, which were released last week and forecast that inflation will not fall below 3% until late 2025. However, the central bank’s outlook does not take into account any unannounced measures that Treasurer Jim Chalmers will introduce at Tuesday’s budget.

“Inflation is still the big near-term challenge in our economy which is why the government is doing its bit,” Chalmers said in Sunday’s statement. “Our Budget will be part of the solution to cost of living pressures.”

Swaps traders are pricing the RBA to stay on hold for the rest of this year before cutting interest rates by the middle of 2025. They see December 2024 as the first meeting where there’s any chance for a reduction, pricing about a 16% probability for an easing then.

The center-left Labor government faces an election within 12 months, and voter concerns about rising prices and high interest rates have been weighing on its popularity. It has already flagged budget measures designed to address those worries, including broad tax cuts and billions of dollars for housing programs. 

The Treasury is expecting GDP growth to slow further over the coming years compared to December forecasts. While its growth forecast for the current financial year is unchanged at 1.75%, its 2024/25 outlook has fallen to 2% from 2.25%.

In the 2025/26 financial year, Tuesday’s budget will forecast growth of 2.25%, down from 2.5% in the December outlook. 

--With assistance from Garfield Reynolds.

(Adds rate bets in sixth paragraph.)

©2024 Bloomberg L.P.