The RBA is expected to leave the cash rate at 4.10% at today's meeting (decision due 1430 AEDT). In February, the RBA dialled back policy restriction with a 25bps rate cut, lowering the cash rate from the peak level of 4.35% it had maintained since November 2023. But a hawkish tone accompanied the decision as Governor Bullock pushed back on market pricing for an easing cycle through the remainder of 2025. With a rate cut roughly 70% priced for May, markets expect today's meeting to be a low-key event.
Increased confidence in the inflation outlook from easing wage and inflation pressures gave the Board the green light to lower rates in February; a move it described as unwinding the final or 'cautionary' hike from November 2023 to guard against upside inflation risk. Although it decided to cut, the Board judged that policy settings would remain restrictive and also highlighted the risk of easing too aggressively. Governor Bullock pointed to the revised inflation forecasts in the February Statement on Monetary Policy that showed inflation settling above the midpoint of the 2-3% target band in 2026 - higher than previously forecast - if the cash rate was to fall in line with market pricing to around 3.5% by year-end. However, that pricing remains similar going into today's meeting.
Further progress on inflation remains key to unlocking additional easing. Based on the monthly inflation reads through January-February, that looks likely to be confirmed in the Q1 CPI report (due April 30). Headline CPI is set to slow from 2.4% to around 2.2%Y/Y while the trimmed mean or core rate is on track to ease from 3.2% to around 2.7%Y/Y, progress expected to open the door to a cut in May. In terms of the labour market, the RBA has been clear in its aim to preserve the employment gains since the pandemic. February's fall in employment (-53k) came as a surprise but looks to have been driven by statistical volatility (due to increased retirements) and is therefore unlikely to change the narrative that the labour market remains robust.
Like all central banks, the RBA is facing a myriad of uncertainties - a key factor it will use to justify holding rates steady today. On the domestic front, the May 3 election is on the horizon and Governor Bullock will almost certainly be questioned on the RBA's assessment of last week's federal budget in which additional cost-of-living measures were announced (see here). Offshore, the economic and inflation outlook is subject to significant uncertainty on the eve of the April 2 'liberation day' with the Trump administration due to announce the tariffs it will impose on a reciprocal basis with its trading partners.