As the Reserve Bank’s July cash-rate meeting gets under way, traders will be just as interested in the tone of the board’s decision as they will be in its substance.
A consensus of economists and bond traders predict the central bank board will deliver its first back-to-back interest rate cut in more than five years when its meeting wraps up on Tuesday.
Inflation seems to be under control and the ongoing uncertainty of tariffs is adding to soft consumer spending, tipping the scales in favour of the RBA looking to provide more stimulus.
The rates market is almost fully pricing in a 25 basis point cut.
While the central bank could still decide to shock the market, past experience suggests the board tends not to move counter to such a strongly held opinion.
Westpac chief economist Luci Ellis said a cut was no “shoo-in”, but the board would have no clear rationale to hold until August as even a hotter-than-expected June inflation outcome would be unlikely to change the equation.
“A decision to cut in July is one of timing and tactics, not whether to cut at all,” said the former Reserve Bank economist.
“If the question is now or in five weeks’ time, the juice is not worth the squeeze. Just get on with it.”
Economists are much less unified in their expectations for August.
The markets have priced in a better-than-even chance the board will go back-to-back-to-back, but Ms Ellis doesn’t expect the next cut after July to come until November.
ANZ, NAB and CBA all believe the central bank will cut again in August, as does AMP chief economist Shane Oliver, who expects governor Michele Bullock to fuel market hopes with more dovish commentary post-meeting.
But JP Morgan economists Ben Jarman and Jack Stinson think slightly more hawkish messaging could correct some overconfidence in the market, which would push assets lower.
“Assuming a cut next week, in the inevitable press conference question about what’s to come in August, we expect the governor to acknowledge a third consecutive move is possible, but list a swathe of criteria that will be relevant,” they said.
“Such an open-ended response would implicitly push back a bit on the August pricing.”
Australian Associated Press is the beating heart of Australian news. AAP is Australia’s only independent national newswire and has been delivering accurate, reliable and fast news content to the media industry, government and corporate sector for 85 years. We keep Australia informed.
