Australia’s Reserve Bank (RBA) has signalled that more interest rate cuts are likely over the next year, but the speed of these reductions will depend on how the economy performs. Minutes from its August 11–12 meeting showed the board expects further policy support will be needed, though whether this comes through gradual moves or faster action remains uncertain.
At the meeting, policymakers agreed on a quarter-point reduction in the cash rate to 3.6%, noting that inflation is now tracking towards the midpoint of the 2–3% target band. The decision followed earlier cuts in February and May, with the RBA choosing to act only after quarterly inflation releases.
Policymakers emphasised that further easing will be necessary to preserve full employment while maintaining stable, low inflation. However, the pace of future cuts could vary. The board weighed the benefits of a gradual approach against the possibility of quicker reductions, insisting that decisions should be data-dependent and made on a meeting-by-meeting basis.
So far, the RBA has adopted a cautious easing strategy, cutting rates only in February, May, and August, following the release of quarterly inflation figures. The minutes noted that a slower pace of cuts could be warranted, given that the labour market remains relatively tight, private demand is strengthening, and uncertainty persists over the neutral interest rate.
On the other hand, a faster pace of cuts might be required if the labour market weakens or inflation drops below the midpoint of the target band. Additional factors, such as a global economic slowdown or renewed tensions from US tariff policies, could also prompt quicker easing.
Economists note that the RBA’s concerns have shifted. “Upside risks to inflation have now been superseded by potential downside risks to the labour market,” said Belinda Allen, head of Australian economics at Commonwealth Bank of Australia. She added that the cash rate may bottom out at 3.35%, but weaker-than-expected growth could lead to deeper cuts.
Investors broadly expect the RBA to hold steady at its September meeting before trimming rates again in November. Market pricing indicates the cash rate will settle around 3.10%, with some bets on a fall to 2.85%.
Headline inflation slowed to 2.1% in the June quarter, with core inflation dropping to 2.7%—its lowest level in three years. At the same time, the labour market is showing only a gradual cooling from full employment. Job growth rebounded in July, and the unemployment rate edged down from a three-and-a-half-year high, easing concerns about a sudden downturn.
The minutes also revealed discussion over whether the RBA should accelerate the rundown of its government bond holdings. The board ultimately decided against any change, opting instead to allow bonds to mature under its current strategy.
Reuters
