- Data on inflation for the March quarter
provided further evidence that inflation continues to ease. - Staff forecasts released today project that
while headline inflation is likely to rise over the coming year to around the top of the band as
temporary factors unwind, underlying inflation is now expected to be around the midpoint of the 2–3 per cent range throughout much of the forecast period. - While recent announcements on tariffs have resulted in a rebound in
financial market prices, there is still considerable uncertainty about the final scope of the tariffs and
policy responses in other countries - These
developments are expected to have an adverse effect on global economic activity - World trade policy is
changing rapidly, thereby making the central forecasts subject to considerable uncertainty. - Private domestic demand appears to have been recovering, real
household incomes have picked up and there has been an easing in some measures of financial stress - A range of indicators suggest that labour market conditions remain tight
- There are uncertainties about the outlook for domestic economic activity and inflation stemming from both
domestic and international developments - The Board judged that the risks to inflation have become more balanced
- Inflation is in the target band
and upside risks appear to have diminished as international developments are expected to weigh on the
economy - With inflation expected to remain around target, the Board therefore judged that an easing in
monetary policy at this meeting was appropriate. - The Board assesses that this move will make monetary
policy somewhat less restrictive - It nevertheless remains cautious about the outlook
- The Board considered a severe
downside scenario and noted that monetary policy is well placed to respond decisively to international
developments - The Board will be attentive to the data and the evolving assessment of risks to guide its decisions
- In
doing so, it will pay close attention to developments in the global economy and financial markets, trends
in domestic demand, and the outlook for inflation and the labour market.
To sum up, this is what I anticipated in the “heads up” article. The RBA lowered the cash rate as an acknowledgement of inflation progress but remains cautious on the future outlook.
The central bank emphasised the risks around trade policies though and the potential drag on growth. That’s why it has cut growth and inflation forecasts, which is what is weighing on the AUD.
RBA forecasts:
- Trimmed Mean Inflation seen at 2.6% in June 2025, 2.6% in June 2026 and 2.6% in June 2027
- GDP Growth seen at 1.8% in June 2025, 2.2% in June 2026 and 2.2% in June 2027
Full statement here
This article was written by Giuseppe Dellamotta at www.forexlive.com.
