The Reserve Bank of Australia (RBA) has delivered a hawkish 25bps cut to the cash rate to 4.10%, which is in line with market expectations. However, RBA Governor Philip Bullock’s subsequent press conference was slightly more hawkish, indicating that there may not be as much room for further rate cuts compared to other developed markets. The RBA emphasized that the 25bps cut was aimed at removing a cautionary rate hike in November 2023 rather than signaling the start of a full-fledged easing cycle, and that policy is still restrictive.
The RBA’s decision has led to a revision in the forecast for the end-2025 cash rate to 3.85%, up from 3.35% previously. The bank is expected to cut rates only once more in Q3-2025, rather than implementing back-to-back quarterly cuts. This is due to concerns about poor productivity growth and the potential for unit labor costs to remain well-supported.
The RBA may cut more than expected if trimmed mean CPI eases at a faster pace than anticipated or if the labor market weakens more substantially. With the pre-election budget due in late-March, the RBA may be monitoring the impact of any further cost-of-living assistance measures on the disinflation process. Overall, the RBA’s decision suggests a more sanguine view of the economy, with inflation concerns still top of mind.