After being caught offside by the RBA's decision to leave interest rates on hold last month, it is a case of better late than never for markets that go into today's meeting (due 1430 AEST) with little trepidation in predicting a 25bps cut in the cash rate to 3.6%. In fact, forward-looking interest rate markets are of the view that the RBA will cut today and then again in November before winding the easing cycle up with one final cut next year, leaving the cash rate at 3.1%. Markets repriced for additional RBA easing after inflation continued to cool in the June quarter, and as the labour market showed signs of softening. Last time out, Governor Bullock said the decision to hold the cash rate at 3.85% (split 6 votes to 3) was more about 'timing rather than direction'. While the most likely outcome is a 25bps cut today, expect Governor Bullock at the press conference to continue the message that a cautious, gradual approach to rate cuts remains the appropriate way forward.
The RBA held in July as it placed more weight on receiving the June quarter inflation data than on defying widespread market expectations to cut. With inflation subsequently confirmed to be within the 2-3% target band and easing in line with the RBA's forecasts after printing at 2.1% in headline terms (from 2.4%) and 2.7% on a trimmed mean or core basis (from 2.9%), the light to cut turned green on the report. Another factor supporting a cut today is that the labour market has shown signs of easing. Governor Bullock highlighted some of these signals in her recent speech on 24 July, including reductions in job vacancies and hours worked and less churn in the labour market from people switching jobs voluntarily. This is in addition to the soft employment outcomes reported for May (-1.1k) and June (2.0k), with the unemployment rate lifting to its highest level since late 2021 at 4.3%.
Alongside today's rates decision, the RBA is set to publish its quarterly Statement on Monetary Policy that includes its latest economic forecasts. Compared to the previous Statement from May, there is less uncertainty around the global trade situation in terms of tariff rates imposed by the US - but the effects on growth and inflation are still very unclear. Domestically, risks around the labour market may have increased somewhat, but the RBA's cautious tone around policy easing suggests its outlook hasn't meaningfully changed. Overall, look for only modest tweaks in the forecasts for Australian inflation (headline CPI: 3% in 2025, 2.9% in 2026; core CPI: 2.6% in 2025, 2.6% in 2026) and growth (2.1% in 2025, 2.2% in 2026).
