MNI BRIEF: RBA Cuts Cash Rate To 3.85%

The Reserve Bank of Australia board cut the 4.1% cash rate by 25 basis points to 3.85% on Tuesday, citing substantially lower inflation and an uncertain outlook for the domestic economy.

"While the central projection is for growth in household consumption to continue to increase as real incomes rise, recent data suggest that the pick-up will be a little slower than was expected three months ago," the board noted in its statement following the decision. "There is a risk that any pick-up in consumption is even slower than this, resulting in continued subdued growth in aggregate demand and a sharper deterioration in the labour market than currently expected. Alternatively, labour market outcomes may prove stronger than expected, given the signal from a range of leading indicators."

The RBA now expects trimmed mean inflation to fall to 2.6% by the June quarter – 10bp lower than its forecast in February – based on a 4% cash rate. The Bank also forecasts a slightly higher unemployment rate of 4.3% by December, up 10bp from its previous estimate, and slightly softer GDP growth of 1.8% by June, before picking up to 2.1% by December – down 20 and 30 basis points respectively, and also sees a slight improvement in labour productivity.

“The Board will be attentive to the data and the evolving assessment of risks to guide its decisions," the statement noted. "In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.”

Governor Michele Bullock will hold a media conference at 3:30 p.m. AEST.