RBA Expected To Cut Cash Rate By 25 Basis Points (Bps
The Reserve Bank of Australia (RBA) will announce its first monetary policy decision for 2025 on Tuesday (18/2), with market participants anticipating the Board to cut the cash rate by 25 basis points (bps).
The RBA has kept the official cash rate at this level since raising the Official Cash Rate (OCR) to 4.35% in November 2023, as inflation remains high. As a result, pressure on households and businesses has been a significant concern, with sluggish economic growth weighing on policymakers’ decisions.
Inflation in Australia did show signs of improvement in December, raising the possibility of a rate cut in February.
The latest quarterly Consumer Price Index (CPI) released showed that inflation rose less than anticipated in the final quarter of 2024. The RBA’s preferred inflation gauge, the Trimmed Mean CPI, rose 0.5% in the quarter, below the 0.6% expected, and the annualized figure came in at 3.2%, down from 3.5% previously.
On the other hand, solid jobs growth weighed on the case for a rate cut. Annual jobs growth rose to 3.1% in December from 2.3% in November, the strongest pace since October 2023. Australia is estimated to have added 20,000 new jobs in January after creating 56.3,000 in December. However, January jobs data will not be available until after the RBA’s monetary policy announcement.
In December, the RBA’s accompanying statement said that “some upside risks to inflation appear to have eased and while the level of aggregate demand appears to remain above the economy’s supply capacity, the gap continues to narrow.”
However, the Minutes released two weeks later included a slight change in wording. Officials then “gained some confidence” that inflation was moving sustainably towards its target of between 2% and 3%.
RBA Governor Michele Bullock also noted that the Board discussed that risks to inflation had eased but were not gone, but that a rate cut or hike was not on the table.
Overall, market participants were anticipating a rate cut, but they did not expect it to be the first of many. Instead, the RBA was expected to maintain its cautious approach to monetary easing. The current restrictive policy settings are likely to be eased slowly.
Source: FXStreet
