RBA Blinks: A Cautious Shift In Policy

The Reserve Bank of Australia (RBA) has taken the widely anticipated step of cutting the cash rate by 25 basis points, bringing it down to 4.10% from 4.35%.

This move aligns with consensus expectations and a risk that we had pencilled in for our base case of a hold. We expected the RBA to wait for one more inflation print before making any policy shifts, but today’s move signals a growing confidence in the disinflationary trend, which has been supported by subdued consumer demand and tight financial conditions.

For us, the statement’s strong focus on 'uncertainty' undermines the confidence behind the cut today. Notably, the RBA has also revised its 2026 underlying inflation forecast slightly higher. This leads us to believe that, despite today’s cut, the policy easing cycle will remain shallow this year, particularly considering global risks such as rising trade tensions and unpredictable international policies.

The RBA’s focus on moderation, along with its cautious stance regarding future economic risks, indicates that while the rate cut is a step in the right direction, any further rate reductions will be measured and gradual. The RBA is likely to continue adjusting its approach based on incoming data, keeping a close eye on inflation trends, the labour market, and broader global economic conditions.