As anticipated at the April meeting of the Reserve Bank, the central bank kept the official cash rate on hold at 4.1%.
No one was surprised at the 2:30 pm announcement that the bank wasn’t cutting rates. Markets had priced in less than a 9% chance that rates would go down. This was an easy call and not an overly exciting discussion among property commentators.
It wasn’t a case of “will they or won’t they.” This meeting was much more about the communication and the tone of the RBA’s statement accompanying the monetary policy decision, as well as the tone of RBA Governor Michele Bullock at her press conference an hour later.
As always, we aim to provide a clear view of what the RBA is saying, the available economic data, and what those in power at the big banks are communicating.
The most obvious difference in communication was how short the monetary policy statement accompanying the cash rate announcement was. Just over 600 words summarized what the Reserve Bank was considering as it held the cash rate. Perhaps the change of boards—now a Monetary Policy Board responsible for setting monetary policy and a Governance Board overseeing the RBA's operations—had something to do with the lack of an in-depth statement.
The policy statement removed an explicit reference to being cautious about cutting rates again, signaling a slightly dovish stance on policy. It removed prior guidance that the Board was “cautious on prospects for further policy easing” and that “if monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range.”
The Board also said, “The continued decline in underlying inflation is welcome, but there are nevertheless risks on both sides and the Board is cautious about the outlook.”
They also added that wage pressures have eased a little more than expected, but productivity growth has not picked up, and growth in unit labour costs remains high.
There was a lot of talk about the uncertainty around US tariffs, which will be handed down by Donald Trump on April 2.
“Despite all the global news and associated uncertainty since the February meeting, the domestic economy has evolved broadly as expected,” Bullock opened her statement with.
“The Board’s strategy is to bring inflation down and avoid a big increase in unemployment. Many indicators suggest the labour market is tight and the Board has discussed the possibility that there’s more strength in the economy which could make it harder to get inflation back down.”
The first question Bullock faced, and always faces in a press conference, is whether the Board discussed a rate cut.
“The Board did not explicitly discuss a rate cut,” Bullock said, adding that it did talk “a little bit about downside risks, including the global downside risks. So far, the data we’ve had since february indicate we’re on track, so we felt that holding was the right thing and that was a consensus decision [among the Board].”
The inflation data, while only being monthly updates since the February rate cut, continues to point toward positive quarterly data, a data point which the Reserve Bank hold in more X compared to the less accurate monthly snapshot of inflation. The quarterly data provides a comprehensive and consistent view of price changes across the entire CPI basket
The monthly CPI indicator rose 2.4% in the 12 months to February, following a 2.5% rise in the 12 months to January, both figures falling firmly in the Reserve Bank’s target band of 2-3%.
The next quarterly data release is on April 30. That will be the key date as to whether the RBA cut rates in May.
In April’s Finder RBA Cash Rate Survey™, 94% of experts and economists predicted a cash rate hold.
Jeffrey Sheen, Professor of Economics at Macquarie University and one of the two experts who had predicted a cut, had said the RBA is marginally more likely to cut the cash rate again than to hold in April 2025.
"The headline inflation rate seems settled within the target range. While core or underlying inflation measured by the trimmed rate is just above the range, more sophisticated statistical measures (e.g. from dynamic factor modelling) indicate that it is in the range. With the escalating global tariff war and the likely weakening of global economic activity, the RBA should act now in anticipation.”
James Morley, University of Sydney’s Professor of Macroeconomics, James Morley, said the somewhat faster drop in underlying inflation compared to the RBA forecast was the main justification for a drop in the cash rate by 25 basis points.
“There is no obvious new information to suggest an immediate need to cut again at this meeting. The labour market remains tight, while the very high level of global uncertainty around trade policies and inflation would argue for waiting and seeing what data materialise to support further cuts or not."
ANZ said they “view the statement as providing the Board a degree of optionality regarding future monetary policy moves.”
Westpac Chief Economist Luci Ellis said post the announcement that while the global picture has deteriorated since the last meeting, the RBA has not concluded that this will affect outcomes in Australia materially.
“It assesses that it is well-placed to respond to global developments should this be needed. The new Board therefore remains focused on the domestic data flow. Inflation has tracked in line with the RBA’s February forecasts and on most measures is now inside the 2–3% target range. However, the Board is not fully confident of further progress or that inflation will remain sustainably at the 2.5% target midpoint. Given this high bar on its confidence, it is waiting for further information, including on the labour market and consumption, as well as inflation.”
Commonwealth Bank, Australia’s largest home loan lender, said the Board has retained a policy easing bias, but this is contingent on a continued easing in consumer price pressures amid evolving global geopolitical risks.
“As we noted in our preview, RBA officials have retained a modestly hawkish narrative since the February decision to commence normalising the cash rate with a 25bp rate cut. As such, back‑to‑back rate cuts weren’t on the cards in our view as it would signal too large a shift in the Board’s view on the economy in a short space of time. The RBA remains cautious about the outlook, although it acknowledges the risk that US tariffs could be a drag on global economic growth.”
NAB is yet to provide an update following the cash rate hold.
ANZ still expects a “shallow easing cycle”, with just one more cut, “most likely in August.” They have however opened a door to further and earlier easing given “greater market instability and global policy uncertainty.”
Westpac “still thinks that further cuts are in the offing, with the next one most likely in May following yet more pleasant news on inflation and a review of the RBA’s forecasts.”
Commonwealth Bank also expects a cut at the May board meeting on May 20.
“Our forecast for the all‑important Q1 25 trimmed mean CPI is 0.6%/qtr. We think that a Q1 25 trimmed mean outcome below the RBA’s 0.7%/qtr forecast means a 25bp rate cut in May is a done deal.
An outcome for the trimmed mean CPI in line with the RBA’s forecast would likely see us hold our view that a 25bp rate cut in May is the likely policy choice. But other economic data between now and the May Board meeting would feed into the decision, particularly the labour market data. The probability of a May rate cut would be swayed by that as well as the composition of the Q1 25 CPI itself.
CBA still believes the cash rate will end 2025 at 3.35% (three further 25bp rate cuts over 2025).
“We have the interest rate cuts pencilled in for May, August and November.”
NAB hasn’t updated its expectations since the end of January when they too believed there would be three more cuts to end the year at 3.35%. They expect another cut in early 2026 to take the cash rate down to 3.1%, where they believe it will finish its easing cycle.
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