From Adam Bowe, Executive Vice President and Head of Australia Portfolio Management at PIMCO
As expected the RBA cut the policy rate by 25bp to 3.85% and lowered their forecasts for growth and inflation noting that household consumption remains soft and uncertainty around the global outlook has increased given recent tariff developments.
The statement acknowledged that uncertainty around the outlook was elevated and the risks for the inflation outlook were more balanced.
What does it mean?
The policy decision and updated forecasts highlight that interest rates remain restrictive which continues to weigh on household spending and broader economic growth.
Prior expectations for an improvement in domestic growth over the balance of the year are now being challenged by headwinds to global growth, caused by rising tariffs and their potential implications for global trade and business investment.
Although the direct impact of tariff developments is modest for Australia, the secondary effects—such as slower regional growth and potentially lower commodity prices—are more significant.
Also read: Moody’s Downgrades US Sovereign Rating
What’s next?
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 gradually lower the cash rate toward neutral over the remainder of the year.
Rising global trade barriers pose downside risks to regional growth, increasing the likelihood of a steeper rate-cutting cycle by the RBA and a terminal cash rate falling below 3.0%.
