RBA Review: Recognize Inflation Moderates and Upside Risk

The RBA has cut the cash rate to 3.85% in the May 20 meeting as they revised their forecast of trimmed mean CPI to 2.6% y/y throughout mid 2026. They now see terminal rate to be at 3.2% till June 2027. Their forward guidance did not change by indicating data dependency approach and being cautious towards the future uncertainty. Our central forecast see two more cuts in 2025 to 3.35% and 3.2% in 2026. Given the cautious take of RBA, we are unlikely to see consecutive cut for now.

The RBA also made some revision to their forecast. They see GDP to recover in 2026, from 1.8% in June 2025 to 2.2% in June 2026, staying the same till June 2027. The RBA seems to think the labor market will stay solid and see unemployment rate at 4.3% in 2026/27. While they are concerned about tariff development, they seems to be optimistic about the recovery in private demand.

The current trajectory likely lead to choppy inflation picture tilting towards the downside for trimmed mean. The next 25bps will likely be in Q3 2025.