Financial markets believe that the Reserve Bank of Australia (RBA) will deliver another three 25 bp cuts to the official cash rate (OCR) in 2025, taking the OCR to 3.10% by year end.
However, the market ascribed roughly a 70% probability of the RBA cutting the OCR at its next meeting in July.
Belinda Allen, Senior Economist at CBA, notes that the RBA Minutes, released on Tuesday, were on the “dovish” side and confirm that a July rate cut is ‘live’.
“The dovish language around the decision, the fact that a 50 bp cut was considered, and little push back from the RBA of current market pricing has lifted pricing of a July rate cut to over 70%”, noted Allen.
“The size of the arguments contained in the Minutes point towards a fuller discussion of 50bp than expected. It appears that the arguments for no change to the cash rate were dismissed quite quickly”…
“The July meeting is ‘live’ given the discussion in the Minutes. We expect it will come down to the data flow between now and the 8 July decision”.
“The monthly CPI, the labour market and consumer spending data will be important to watch. As will the Q1 25 National Accounts, where we now expect a softer 0.3%/qtr lift (was 0.4%/qtr) based on the partials data flow”.
“Leaning against a July cut is the Fair Work Commission decision to lift the minimum wage by a stronger than expected 3.75% and an unchanged April monthly CPIagainst expectations of a fall”, wrote Allen.
CBA is less dovish than the market and expects the RBA to deliver two more 25 bp cuts this year, favouring an August and September cut.
