From Adam Bowe, Executive Vice President and Head of Australia Portfolio Management at PIMCO.
What happened
The Reserve Bank of Australia held the policy rate steady at 3.85%, surprising the market which was priced for a 25bp cut.
The statement noted an outlook that was little changed from their last meeting, acknowledged that uncertainty around the outlook was elevated but they required a little more information to confirm that inflation remains sustainably on track towards target.
What does it mean
Despite maintaining the policy rate at 3.85% today, restrictive monetary policy continues to weigh on growth and inflation which will keep the RBA on a gradual easing path.
With evolving evidence that inflation is now firmly within the RBA’s target band of 2-3%, limited evidence of a material pick up in domestic growth, and rising global risks around geopolitics and trade, the time for restrictive monetary policy has now passed.
What next
Today’s meeting outcome does not alter our medium-term view and in fact confirms our quarterly cut thesis.
With inflation within the RBA’s target band and expected to stay there, alongside a labor market that appears roughly balanced, we continue to anticipate the RBA will lower the cash rate toward neutral.
Rising global trade barriers in addition to geopolitical tensions, pose downside risks to regional growth, increasing the likelihood of a steeper rate-cutting cycle by the RBA and a terminal cash rate below 3.0%.
