RBA: On Hold, 25bp Or 50bp Cuts All Discussed, Policy Outlook Uncertain

When asked Governor Bullock said that today’s rate reduction was a “confident cut” for current circumstances. However, she said that the outlook for monetary policy is significantly more uncertain. It was a consensus decision following a discussion of unchanged rates vs a cut and then when the latter was chosen quickly the dialogue became between 25bp or 50bp of easing. 25bp was the strongest argument and seen as the correct amount for right now.

• Bullock stated that she doesn’t know if the Board is headed into a series of cuts but she knows that it has policy space to react quickly if needed and decisions will remain data driven. It is ready to act if needed but this is a completely different shock and so policy will also need to be set differently.
• The tone accompanying the May rate cut was more dovish than that accompanying the February move, as the world has changed significantly between the two. But it probably would’ve been the right decision even without US tariffs increases as inflation returned to the band.
• The RBA is assuming that global trade developments will be disinflationary for Australia but there are still upside risks stemming from supply-chain imports.
• Bullock noted that the current environment is not only highly uncertain but also unpredictable. The RBA published various trade scenarios. The actual US reciprocal tariff announcement was significantly worse than expected.
• The Board will remain “agile” to conditions and alert to risks. There is an upside risk to inflation from the tight market, which could be signalling that supply & demand are not yet in balance. On the downside, it was surprised that households have been more cautious despite the pick-up in real incomes.