RBA governor Michele Bullock might have enough data to grant another interest rate cut if quarterly inflation data lands in the right place. (Source: AAP/Getty)
Commonwealth Bank (CBA) believes an August interest rate cut from the Reserve Bank of Australia (RBA) hangs on one “critical” piece of information. The RBA shocked the nation this month when it decided to hold the cash rate at 3.85 per cent, despite the “almost universal” expectation of a 25 basis point cut.
The Australian Bureau of Statistics (ABS) is set to release quarterly inflation data next Wednesday, and the Big Four bank said that it will be do-or-die for homeowners. CBA senior economist Belinda Allen said all eyes will be on those numbers when they drop just before midday.
“By the August meeting, data on quarterly inflation data together with fresh forecasts and another labour market print would provide additional information,” she said.
“The upcoming Q2 25 CPI print… is critical.
“Despite the unemployment rate shifting higher to 4.3 per cent, the RBA Monetary Policy Board has shown they remain focused on returning inflation to the mid-point.
“A shift lower in the annual rate of trimmed mean inflation should be sufficient to see the cash rate lowered in August.
“Market pricing for an August rate cut is over 100 per cent priced. But it is not a done deal.”
The quarterly consumer price index (CPI) figures give a much broader snapshot of how Australia is faring with inflation, and it trumps the monthly data that the RBA had to work with during its July meeting.
The last quarterly CPI release showed trimmed inflation was sitting at 2.9 per cent.
While that is within the RBA’s 2 to 3 per cent target range, it’s clear the central bank wanted to see that number lower before issuing the third rate cut of 2025.
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Six Board members were in favour of a hold, while three favoured a cut.
Those latter members said there were “downside risks” to Australia’s economic outlook, partly due to “a likely slowing in growth abroad and from the subdued pace of GDP growth in Australia”.
The RBA published the minutes of its July 7-8 meeting this week and, interestingly, it revealed the shock decision to hold wasn’t solely due to a lack of broader inflation information.
“The labour market was assessed to have remained tight, with measures of labour utilisation little changed over the prior year,” it said.
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