ISCOVER
The central bank has described its monetary policy stance as “somewhat restrictive” in its latest meeting minutes.
The Reserve Bank of Australia (RBA) has revealed that its Monetary Policy Board members agreed at their August meeting that “some further reduction in the cash rate over the coming year” appears likely to maintain full employment while bringing inflation back to its target range midpoint.
The board unanimously decided to lower the cash rate target by 25 basis points to 3.6 per cent on 12 August, bringing the rate to its lowest level since May 2023.
In its minutes for the August meeting, RBA board members agreed that – based on what they knew at the time of the meeting – further rate cuts over the coming year “appeared likely” and that the current stance of monetary policy was still “somewhat restrictive”.
Members also acknowledged that financial conditions had eased since the start of the year, as the cash rate had been reduced and risks in financial markets had fallen.
There was no discussion about the prospect of a larger rate cut (i.e. one greater than 25 basis points), and discussion around policy outlook broadly focused on the pace of future easing.
When will the next rate cut be?
In assessing the likely pace of further cuts to the cash rate, members noted several factors that may warrant the board adopting a “gradual pace”.
One consideration was that labour market conditions “remained a little tight” and that inflation was expected to be “marginally above” the midpoint of the 2–3 per cent target range in the medium term, the board said.
Board members noted that if the labour market turned out already to be in balance, it “might warrant a slightly faster reduction in the cash rate over the coming year”.
A slightly faster reduction would also be appropriate if the balance of risks to the forecasts became more clearly skewed to the downside, perhaps because of negative developments in the global economy, according to the minutes.
Uncertainty about the outlook for the global economy “remained significant” but had declined over previous months as the prospect of retaliation against US tariffs had moderated, the board added.
Inflation easing
The RBA board members noted that underlying inflation had continued to ease as expected and that the outlook was little changed from the May forecast.
Underlying inflation was expected to be around 2.5 per cent over the forecast period, on the assumption that there was some further gradual easing in the cash rate consistent with the market path.
Headline inflation was expected to increase temporarily over the second half of 2025 to around 3 per cent, before returning close to the midpoint of the target range over the latter part of the forecast period.
Commenting on housing prices, the board said that increases were, to date, within the expected range based on previous easing cycles and that dwelling investment was showing clear signs of strengthening.
“Evolution” in RBA thinking
The Commonwealth Bank’s (CBA) newly-appointed head of Australian economics, Belinda Allen, said the minutes pointed to a shift in focus from inflation to the labour market.
“Upside risks to inflation have now been superseded by potential downside risks to the labour market,” she said.
The major is forecasting a further 25 basis point rate cut in November and said an earlier rate cut in September is unlikely and would only occur if labour market data “deteriorated significantly”.
Tapas Strickland, National Australia Bank’s (NAB) head of markets economics, said the minutes highlighted the RBA’s sensitivity to the labour market.
“The data post the minutes continues to suggest a gradual cutting pace,” he noted.
NAB sees the RBA cutting rates again in November and February, bringing the cash rate down to 3.1 per cent, which it views as broadly neutral.
Australia and New Zealand Bank (ANZ) economist Madeline Dunk and senior economist Adelaide Timbrell said the minutes did not change their view that the RBA will deliver a final 25 basis point cut in November 2025.
They then expect the cash rate to stay at 3.35 per cent for an “extended period”.
The economists flagged that future moves in the cash rate are likely to be “highly data dependent”.
Westpac was approached for commentary on the RBA’s monetary policy board meeting minutes for August.
[Related: RBA slashes cash rate to lowest level in over 2 years]
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