Anticipated Interest Rate Reduction as RBA Gathers this Week
The Reserve Bank of Australia (RBA) is gearing up for a significant monetary policy decision on July 8, 2020, with experts predicting a 25 basis point cut in the official cash rate. This move follows the RBA's 'dovish' message at the May board meeting, indicating a cautious approach to the Australian economy.
In May, the RBA slashed rates, basing its decision on moderating inflation and an uncertain economic outlook. If the forecasts hold true, the cash rate will be brought down to 3.6%, a reduction from the current 3.85%.
However, Westpac economists believe that this rate cut won't be the "slam dunk" markets are expecting. They suggest that the RBA might be more cautious in its approach, considering the ongoing economic uncertainties.
Analysts are closely watching the Q2 CPI print for signs of underlying inflation. The May CPI Indicator was better than expected, but experts predict that inflation will remain in the top half of the target band in the full Q2 CPI data.
Carl Ang, an analyst, suggests that more RBA cuts are set to follow due to the ever-shifting balance of risks and heightened uncertainty for hiring and investment in the Australian economy. If the RBA does cut the rate, it will mark the third cash rate cut this year.
Looking ahead, the RBA meeting scheduled for August 2025 will be a significant event. While the exact date for this meeting is yet to be confirmed, analysts suggest that the RBA will likely hold rates at the July meeting or cut then, but wait until the August meeting to make further decisions, especially to consider the upcoming June quarter CPI inflation data released at the end of July.
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Banks are also predicting further cuts this year, with rates forecast to reach 3.1% by early 2026. This easing is welcome news for mortgage holders, who stand to save about $101 a month on a $660,000 home loan.
[1] Source: Various analyst commentaries and economic forecasts.
In light of the ongoing uncertainty in the Australian economy, analyst Carl Ang predicts more RBA cuts following the July 8, 2020 meeting, potentially marking the third cash rate cut this year. Meanwhile, Westpac economists anticipate a cautious approach from the RBA in future monetary policy decisions, including finance and business matters, due to the shifting balance of risks.
