RBA Set To Cut Rates As US Inflation, Tariffs Weigh On Outlook
The Reserve Bank of Australia (RBA) is set to cut the Official Cash Rate (OCR) by 25 basis points (bps) to 3.85% from 4.1% after it concludes its May monetary policy meeting on Tuesday (20/05). The decision will be announced at 04:30 GMT.
The latest economic forecasts will be released alongside the policy statement, with RBA Governor Michele Bullock’s press conference due to follow at 05:30 GMT.
With the rate cut now priced in, traders will be looking to the central bank’s latest economic projections and comments from Governor Bullock for further direction on interest rates and the Australian Dollar (AUD). A series of recent Australian economic data releases have pushed back market expectations for further RBA rate cuts this year.
Australia’s economy added 89,000 new jobs in April, beating estimates of a 20,000 increase by a wide margin, while March’s reading was revised to show a gain of 36.4,000 jobs instead of the previously reported 32.2,000. The Unemployment Rate remained unchanged at 4.1% in April.
Meanwhile, Australia’s Consumer Price Index (CPI) rose 2.4% in the first quarter from a year earlier, higher than market expectations of 2.2%, and unchanged from the 2.4% increase in the previous quarter.
The Trimmed Mean CPI, the RBA’s closely watched gauge of inflation, rose 0.7% quarter-on-quarter (QoQ) and 2.9% year-on-year. The RBA has a target range for inflation of 2%-3%.
The Wage Price Index rose 3.4% year-on-year in the first quarter, beating estimates and the previous reading of 3.2%. On a quarterly basis, wages rose 0.9%, beating estimates of 0.8%.
The national labor market remains strong while underlying inflation is rising, which could prompt the RBA to signal caution on the policy outlook.
In addition, revisions to the inflation and growth outlooks will also help gauge the RBA’s future direction on interest rates.
Previewing the RBA’s policy decision, TD Securities (TDS) analysts said: “The overnight index swap (OIS) market has also fully priced in a 25bps cut. Of particular interest is the RBA’s assessment of the risks around rates. We see small downside risks to GDP, but doubt that CPI will change materially.”
Source: FXStreet
