RBA: A step closer to terminal rates - Standard Chartered

RBA unanimously cut the cash rate by 25bps to 3.60% as the economy comes into better balance. The central bank is likely to remain data-dependent, as opposed to being data-point dependent.

One more rate cut in Q4 to round off the easing cycle is possible, taking the terminal cash rate to 3.35%. The risk remains skewed towards a deeper easing cycle in the event of a sharp economic slowdown, Standard Chartered's FX and Macro Strategist Nicholas Chia reports.

Peppered with questions around productivity growth

"The Reserve Bank of Australia (RBA) unanimously cut the cash rate by 25bps to 3.60%, in line with our and market expectations. The RBA made modest adjustments to its cash rate forecast, to 2.9% by end-2026 (vs 3.2% in the May Statement of Monetary Policy), and judged that it is consistent with a less restrictive monetary policy stance while keeping the labour market in balance. It downgraded its 2025 GDP growth forecast to 1.7% from 2.1% previously amid external headwinds; it sees the unemployment rate and trimmed mean CPI holding steady at 4.3% and 2.6%, respectively, from Q4-2025."

"Questions around the RBA's downgrade to its trend productivity growth assumption by 30bps to 0.7% per annum dominated the press conference. Governor Bullock stressed that the central bank does not forecast or model productivity in itself, and that the revision is meant to reconcile the "tension in the forecasts" where the central bank has repeatedly over-estimated GDP and consumption growth. There was also no discussion of a larger 50bps cut. According to Governor Bullock, the central bank is likely to remain data-dependent, as opposed to data-point dependent, in assessing the next move for policy rates."

"Our baseline remains for one final rate cut by the RBA in Q4, taking the cash rate to 3.35%; we think a cut is more likely in November than December, given the release of the SoMP. The case for further easing is predicated on the economy coming into better balance, with a loosening labour market accompanied by slowing price pressures. We think the central bank will watch the totality of data and will likely be comfortable with lower rates so long as data continues to move in the right direction. In terms of risks, we do not rule out a deeper easing cycle, especially in the event of a sharper-than-anticipated economic slowdown amid an unconducive environment for global trade."