RBA’s rate pause surprise
The RBA held the official cash rate steady at 3.85% following today’s monetary policy board meeting – despite widespread expectations of a cut.
Almost all analysts had tipped that a third cut in 2025 would be delivered by the central bank, citing continuing stable inflation numbers and a need to stimulate spending in the economy amid global instability.
And with the Australian economy growing 0.2% in the March quarter (and just 1.3% annually) the data suggested a drop in the official cash rate was due.
However, surprisingly, the RBA opted to hold at 3.85% today, pointing to needing more time to gauge inflation’s downwards trajectory as its primary reasoning.
‘With the cash rate 50 basis points lower than five months ago and wider economic conditions evolving broadly as expected, the Board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis,’ said the RBA.
Following cuts in February and May, the RBA would argue it has acted decisively by bringing down the official cash rate from 4.35% at the start of the year to today’s rate of 3.85%.
However, a spending stimulus, argued by many experts, was needed today with inflation stable at 2.4% – right in the RBA’s target band of 2–3%.
Perhaps the 2.9% trimmed mean inflation rate (a measure of inflation that excludes a certain percentage of the highest and lowest price changes from the calculation) was the factor that pushed the RBA board to make today’s decision.
Looking ahead, market economists are offering perspectives on the likely trajectory.
AMP Deputy Chief Economist Diana Mousina, for example, predicts the official cash rate could settle around 2.85% by the time this current easing cycle concludes. On the flip side, some analysts are already saying that there might even be a rate hike at the next RBA meeting.
Still, the major banks predict between two and four cuts should be delivered in 2025 and into early next year.
‘Should’ is the operative word.
It’s a volatile world right now as we’ve seen in the Middle East together with the US tariff pause approaching its end.
The next board meeting on monetary policy is 12 August.
The RBA didn’t confirm or deny expectations of an August cut, noting somewhat cautiously that, ‘while recent monthly CPI Indicator data suggest that June quarter inflation is likely to be broadly in line with the forecast, they were, at the margin, slightly stronger than expected.’
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