Australia’s RBA sees scope for future rate cuts

Australia’s central bank, the RBA, disclosed minutes from its August 11-12 board meeting, revealing that more rate cuts will be needed over the next few months. The board agreed that the easing could be slow or fast, but acknowledged that global risks and the flow of incoming economic data would determine the pace.

The RBA’s board emphasized that further rate cuts are necessary to maintain stable and low inflation and preserve full employment. It advocated for gradual easing but a quicker move through the procedures, although the results of this strategy are still up in the air. The board concluded it was probably best if the pace of rate cuts was determined by reviewing data on a meeting-by-meeting basis. 

Cryptopolitan reported the RBA cut its main interest rate by a quarter-point to 3.6%, and is expected to make at least three more cuts by early next year. Unlike other central banks, the RBA moves slowly and relies on data, not market pressure. The bank planned to act cautiously as it expects inflation to remain below 2.6% for 2025 and 2026, before dropping to 2.5% by the end of 2027. 

Bullock says RBA is not under pressure to lower rates

RBA governor, Michele Bullock, stated that the Australian central bank is not pressured to lower rates like its counterparts. She pointed out that the central bank did not push policy as high during the tightening campaign in 2022-23. However, economists allege that there may be two more cuts by March 2026. 

Governor Bullock previously said that projections suggested a lower cash rate to keep inflation stable and low, but cautioned that there is still a lot of uncertainty. She reflected this uncertainty when she declined to comment on whether the 3.6% rate was restrictive or not. However, the governor stressed that the RBA is committed to ensuring full employment while keeping inflation in check. 

“Forecasts imply that the cash rate might need to be a bit lower than it is today to keep inflation low and stable and employment growing but there is still a lot of uncertainty.”

–Michele Bullock, Governor of the RBA

Data from the RBA revealed that headline inflation eased to 2.1% in Q2 and the trimmed mean core inflation rate hit 2.7%, a new three-year low. Meanwhile, the labor market also eased as the rate of joblessness dropped from 4.3% to 4.1% in a month. The data also confirmed that consumer spending is slowly picking up as the low inflation effects of previous cash rate cuts finally filter through the economy.

U.S. tariff policy compels accelerated easing 

The RBA board agreed that the effects of U.S. tariffs added to the case for quicker easing. It suggested a faster pace if inflation risks undershooting the 2-3% targeted range, or if the labor market continues to weaken. However, gradual policy easing would probably be warranted if private demand shows signs of recovery, the neutral rate becomes uncertain, and the labor market remains tight. 

Belinda Allen, the Head of Australian Economics at the Commonwealth Bank of Australia, noted that potential downside labor market risks superseded upside inflation risks. She pointed out that further easing over the coming years is likely needed if the economy’s recovery is slower than expected. The economist believes the interest rate will trough at 3.35%.

Investors are also betting that the RBA will skip September and wait until November to make a move. They foresee the rates easing from the current rate to 3.35%, then settling at around 3.10% before dropping to as low as 2.85%. 

The RBA board also discussed whether to increase the pace of running down government bond holdings. However, the board decided not to change its current strategy of waiting for the bonds’ respective maturity dates. 

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