There were no surprises from the RBA at today's meeting as the Monetary Policy Board (MPB) voted unanimously (9-0) to cut the cash rate by 25bps to 3.6%. Compared to last month's surprising and slightly confusing decision to hold (on a 6-3 vote split), the RBA was much clearer and had more conviction today. This was the third cut for the easing cycle - the cash rate now down 75bps since February - with today's cut reflecting increased confidence in the inflation outlook and some softening in the labour market. Based on market pricing for a gradual reduction in the cash rate to 3.1% by mid next year, the August Statement on Monetary Policy showed inflation and the labour market is forecast to remain on track with the RBA's objectives. This was the key message from Governor Bullock today, despite the post-meeting press conference becoming rather sidetracked by a modest downgrade to the RBA's assumption for productivity growth.
Today's decision was straightforward for the MPB. The decision statement referred to the all-important quarterly inflation data for Q2 - the missing ingredient at the last meeting - noting that core inflation had made progress towards the middle of the 2-3% target band, while highlighting that the labour market had eased a little. Due to those considerations, the MPB concluded that 'a further easing of monetary policy was appropriate'.
The RBA's outlook for inflation and the labour market - the key forecasts for monetary policy - effectively gave soft validation to markets pricing in at least 50bps of further rate cuts. This was a somewhat dovish surprise today given the RBA's cautious tone on easing. The inflation forecasts were left unchanged. Headline inflation (currently 2.1%) is seen rising to 3% by year-end as temporary rebates unwind, before easing in 2026 (2.9%) and 2027 (2.5%). More importantly, core inflation, currently at 2.7%, is forecast to ease a little further to 2.6% and then hold at this pace around the midpoint of the target band through the projections. In the labour market, the RBA continues to see the unemployment rate ticking up to 4.3% this year but to then maintain that level over 2026 and 2027, an unchanged outlook.
The one area that has seen some movement is the growth outlook. The RBA cut forecast growth to 1.7% this year (2.1% previously) and 2.1% in 2026 (from 2.2%). At the post-meeting press conference, Governor Bullock explained this came about due to a downgrade in the RBA's assumption for productivity growth, to 0.7% by the end of the forecasts from 1% previously. Governor Bullock said this had no implications for monetary policy because the outlook for inflation and the labour market was consistent with its objectives. The tweak came about due to the judgement that GDP growth had disappointed the RBA's expectations due to an overly high assumption for productivity.
In terms of the outlook more generally, while a worst case scenario in the tariff war has likely been avoided, the MPB reaffirmed the effects on global trade are still expected to weigh on growth and inflation in Australia. Domestically, there is a sense that the RBA sees the recovery as a little fragile, with households cautious and reduced tightness in the labour market. All this vindicates market pricing for additional rate cuts; however, the RBA will likely remain reluctant to speed up its easing cycle from the series of quarterly rate cuts its has delivered so far this year. The next RBA monetary policy meeting is on 29-30 September.
