RBA CUTS by 25bp, as widely expected (to 4.1%, from 4.35% previously)

This is the first Reserve Bank of Australia cash rate cut since the cut in November 2020 to 0.1%

The RBA rate hike cycle began in May 2022 with a move to 0.35%, and the Bank has been on hold at 4.35% since last hiking in November 2023.

Full text of the statement is here.

Scan the summary headlines below, this is a ‘hawkish’ cut from the Bank. Further cuts will be slow and spaced out from here. Once every quarter would seem to be about the best to be hoped for at this stage … data dependent, of course!

Headlines via Reuters:

• Reserve Bank of Australia statement on monetary policy: inflation and GDP have been softer than expected, labour market stronger
• RBA: domestic financial conditions assessed to be restrictive, rates above neutral
• RBA: wide range of estimates for neutral rate, but some estimates have declined
• RBA: risk we have overestimated extent of excess demand in labour market
• RBA: labour market still tight, but there might be more spare capacity elsewhere than thought
• RBA: Q4 trimmed mean inflation softer than expected, some easing in housing and service costs
• RBA: cuts inflation and unemployment forecasts, sees lower household spending but higher public demand
• RBA: forecasts CPI at 2.4% June 2025, 3.2% June 2026, 2.7% June 2027
• RBA: forecasts trimmed mean inflation 2.7% June 2025, 2.7% June 2026, 2.7% June 2027
• RBA: forecasts GDP 2.0% June 2025, 2.3% June 2026, 2.2% June 2027
• RBA: forecasts unemployment 4.2% June 2025, 4.2% June 2026, 4.2% June 2027
• RBA: forecasts wage growth 3.4% June 2025, 3.2% June 2026, 3.1% June 2027
• RBA: forecasts based on technical assumption cash rate at 4.0% June 2025, 3.6% December 2025, 3.4% June 2026
• RBA: despite decline, A$ still close to model estimate based on terms of trade, yield differentials
• RBA: U.S. economic policies pose material risks to global outlook this year and next
• RBA: risk that U.S. tariffs leads to noticeable tightening in financial conditions

• RBA: underlying inflation is moderating
• RBA: the outlook remains uncertain
• RBA: sustainably returning inflation to target is the priority
• RBA: the board will continue to rely upon the data and the evolving assessment of risks to guide its decisions
• RBA: board more confident that inflation is moving sustainably towards the midpoint of the 2–3 per cent target range
• RBA: upside risks remain
• RBA: forecasts published today suggest that, if monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range
• RBA: there has also been continued subdued growth in private demand and wage pressures have eased
• RBA: in removing a little of the policy restrictiveness in its decision today, the board acknowledges that progress has been made but is cautious about the outlook
• RBA: board remains cautious on prospects for further policy easing
• RBA: the board’s assessment is that monetary policy has been restrictive and will remain so after this reduction in the cash rate
• RBA: some of the upside risks to inflation appear to have eased and there are signs that disinflation might be occurring a little more quickly than earlier expected. There are nevertheless risks on both sides
• RBA: some recent labour market data have been unexpectedly strong, suggesting that the labour market may be somewhat tighter than previously thought

This article was written by Eamonn Sheridan at www.forexlive.com.