The Reserve Bank of Australia (RBA) has reiterated its cautious stance regarding interest rate cuts, revealing little new information about future monetary policy.
Governor Michele Bullock emphasized that any potential reductions would be gradual and modest, opposing market expectations of a swift series of cuts. Speaking at the Anika Foundation event, she highlighted that inflation was gradually declining while the unemployment rate had risen in line with previous forecasts.
According to a SkyNews report, Bullock’s comments indicated that the RBA’s outlook remains cautious, offering little indication of a significant policy shift in the near future.
RBA’s Cautious Approach Amid Inflation and Labour Market Data
In her speech at the Anika Foundation event, Bullock addressed the recent economic data, highlighting that the unemployment rate rose by 0.2 percent to 4.3 percent in June, exceeding market expectations.
However, she emphasized that this increase was in line with the RBA’s earlier forecasts, and it was not a surprise. Alongside this, inflation appears to be slowing, with trimmed mean inflation expected to decline further in the June quarter, but not as much as originally predicted.
Bullock pointed to the monthly CPI Indicator data, which showed volatile movements, suggesting that the drop in inflation might not be as sharp as previously forecast. Despite this, the RBA continues to expect inflation to gradually decrease toward a target of 2.5 percent.
The Outlook for Rate Cuts
In response to the current economic conditions, the market had been anticipating a series of rate cuts, with some forecasts suggesting as many as three or four cuts by 2026.
However, ANZ chief economist Richard Yetsenga remarked that while a rate cut is likely in August, the pace of any further reductions will remain gradual.
The tone of the speech today I think was consistent with easing still being pretty gradual and modest – Yetsenga commented.
He noted that while the market is pricing in multiple cuts, Bullock’s comments did not align with such expectations.
