RBA Preview: Locked and Loaded

The RBA will cut the cash rate to 3.6% in the August 12th meeting as the current inflationary metrics turn closer to the mid point of target range. The combination of lagged effect of easing and uncertainty in inflationary dynamics has kept the RBA from aggressive cutting. However, with Q2 headline CPI closing to the lower bound of target range at 2.1% y/y and trimmed mean treading towards mid point at 2.7% y/y, we believe the RBA will recognize the downtrend in CPI and cut by another 25bps. 

There has been little changes in inflationary trajectory which shows a clear down trend even in trimmed mean CPI. Thus, the forward guidance maybe critical as most market participants are expecting a 25bps cut. It is likely the RBA will not suggest consecutive cutting as they are seeing occasional spike in CPI and have to assess the impact after Trump's final tariff rate. So far, we do not see either to be driving up the inflationary pressure significantly and derail the current rate change forecast.

We continue to see one more 25bps cut in 2025 before a final cut in Q1 2026. The timing of the 2025 cut will likely be the November meeting, to give RBA sufficient time to assess the impact of easing and Trump's tariff policy.