RBA Review: Recognize Inflation Moderates and Upside Risk

The RBA has kept the cash rate unchanged at 4.1% in the Apr 1 meeting as they see upside risk to inflation after headline moderates below 2.5% y/y. They acknowledge progress in moderation of CPI but are looking for it in a sustainable manner. Their forward guidance did not change by indicating data dependency approach. Our view has not changed and see two cuts in 2025 to 3.6% and 3% in 2026. The timing of the first cut could be as early as June if CPI further moderates. With their data dependency approach and favors inflation sustainably in mid range, it seems to suggest they are looking for the trimmed mean CPI to reach 2.5% before their next cut. 

While it looks like baby steps, the RBA is optimistic about the recovery in domestic demand, along with higher real wage. The latest weakness in headline employment data has also been watered down but they are still seeing slower growth in wages. The economic outlook, both domestically and globally, remains uncertain. Sluggish consumption growth and worse deterioration of labor market are cited to be critical factors for deviation in domestic outlook forecast. Obviously, Trump's tariff policies and geopolitical tension are not missed out in RBA's mind.