Reserve Bank of Australia a late comer to global easing cycle

Summary

• The Reserve Bank of Australia (RBA), in a widely expected move, delivered the initial rate cut of its monetary easing cycle at this week's monetary policy announcement, lowering its Cash Rate by 25 bps to 4.10%.

• That said, the RBA's initial rate cut appears to be a tentative first step, with the decision to lower interest rates accompanied by a combination of both dovish and hawkish comments. That tentative approach is also reflected in the RBA's guidance, which indicated that if monetary policy is eased too much too soon, disinflation could stall. In removing a little of the policy restrictiveness with its decision, the RBA acknowledged that progress has been made, but is still cautious about the outlook.

• At a minimum, we view the RBA's less dovish-than-expected rate cut as consistent with only a gradual pace of monetary easing; that is, no more than 25 bps per quarter. With monetary policy still restrictive, and so long as activity growth and inflation pressures soften further overall, we remain comfortable with our view of a May rate cut, and also see an August rate cut as more likely than not. Our current forecast for a final November rate cut is perhaps most at risk, should economic activity or the labor market show an unexpected degree of resilience, or if underlying inflation pressures fail to ease sufficiently.

Reserve Bank of Australia takes cautious first step along rate cut path

The Reserve Bank of Australia (RBA), in a widely expected move, delivered the initial rate cut of its monetary easing cycle at this week's monetary policy announcement, lowering its Cash Rate by 25 bps to 4.10%. That said, the RBA's initial easing appears be a tentative move, with the decision to lower interest rates accompanied by a combination of both dovish and hawkish comments. On the dovish side, the RBA said:

• Inflationary pressures are easing a little more quickly than expected. There has also been continued subdued growth in private demand and wage pressures have eased.

• Growth in output has been weak, private domestic demand is recovering a little more slowly than earlier expected, and there is uncertainty around the extent to which the recovery in household spending in late 2024 will persist.

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