Central bank may move beyond standard 0.25% cut after surprising rate hold last month
The Reserve Bank of Australia (RBA) could implement a 35 basis point interest rate cut at its upcoming meeting next week, departing from the usual 25 basis point adjustment, according to David Robertson (pictured), chief economist of Bendigo Bank.
The move is being discussed as the central bank weighs recent increases in unemployment and continued moderation in inflation.
“The decision on August 12 appears to be just a matter of how large a cut will be delivered,” Robertson said.
“A month on from the RBA surprising markets by keeping rates on hold, insisting they wanted more evidence of moderating inflation, we’ve seen nothing but confirmation that inflation is at or below its target of 2.5%, and that the risks of any rebound in underlying inflation have receded further.”
All four major banks – Westpac, NAB, Commonwealth Bank, and ANZ – expect reductions in the official cash rate, forecasting cuts of 0.25% in both August and November.
Robertson noted that the unemployment rate increased to 4.3% in June, and second quarter consumer price index (CPI) data showed subdued inflation. He argued that these developments support the case for a rate cut, and that the RBA could have justified easing policy at its previous meeting.
However, he acknowledged that the RBA has consistently signalled a cautious approach to monetary policy changes. Recent household spending figures also showed only modest increases in both discretionary and essential categories.
Looking ahead, Robertson, In Bendigo Bank’s latest economic update, expects the RBA to cut rates each quarter, reaching a neutral level of around 3% to 3.25% by February next year.
“Households and small businesses are still in need of interest rate relief as they claw back the impacts of the inflation shock from 2022-24, and as we continue to deal with a highly complex and uncertain global backdrop,” the economist said.
Despite ongoing global challenges, Robertson believes Australia’s lower average tariff rate of 10% is a positive factor. “Recent progress with moderating inflation leaves us with one less thing to worry about,” he said.
“If our forecasts are right, and the RBA cuts rates twice more this year – and potentially again in February – the clouds should continue to clear.”
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