The Reserve Bank of Australia is widely expected to keep
the Cash Rate unchanged tomorrow at 4.35% following a series of soft economic
data. The labour market has eased faster than expected as the unemployment rate rose to 4.4%, which is higher than RBA’s 4.2% forecast. On the inflation side, the Q2 CPI saw the Trimmed-Mean CPI Y/Y coming at 3.6%, which is lower than RBA’s 3.8% forecast.
The central bank will also release the SMP at this meeting with updated macroeconomic forecasts where inflation is expected to be revised lower and the unemployment rate higher. The RBA could signal the peak in the tightening cycle by lowering the Cash Rate forecasts for 2027, which could be taken as dovish by the market.
SMP – May 2026:
The focus will also be on
the last paragraph of the Board’s statement where in June it said “monetary
policy is well placed to respond to developments and the Board is focused on
its mandate to deliver price stability and full employment. It will do what it
considers necessary to achieve that outcome, including increasing the cash rate
target further if required. Today’s policy decision was unanimous”. The consensus is for the
Board to keep it unchanged maintaining the hawkish bias. A removal of
“including increasing the cash rate target further if required” would be taken
as a dovish surprise.
The attention will then shift to the press conference for
potential policy signals from RBA Governor Bullock. In her last speech in July, she said that a key uncertainty was whether the three rate hikes already delivered this year were enough to return inflation to its 2%-3% target band. She also reiterated that the Board is prepared to act as required to achieve its mandate, including by increasing the cash rate further if needed. That’s why a removal of this guidance in the Board’s statement will be taken as a dovish surprise.
This article was written by Giuseppe Dellamotta at investinglive.com.
