The Reserve Bank of Australia (RBA) takes center stage today as economists brace for a rate cut.
Australia's central bank kicked off its latest two-day policy meeting Monday, with the potential for monetary easing on the agenda.
But Belinda Allen, senior economist at Commonwealth Bank (CBA), called an interest rate cut this month "a done deal."
"It has been just five weeks since the shock 'on hold' July decision," said Allen. "Back then the RBA post-meeting statement noted [the decision] was about timing and not direction for the cash rate.
"Five weeks on and the data flow has largely evolved as expected," tAllen said. "The all‑important Q2 25 [consumer price index] CPI data has come and gone and confirmed the disinflation impulse in the Australian economy continued in the June quarter. Lingering concerns the RBA had around new dwelling construction costs, durable goods and market services inflation were largely squashed. Each measure was well behaved."
CBA is anticipating the bank will knock off 25-basis points on Tuesday, bringing rates down to 3.60%.
The RBA surprised markets in July by holding the official cash rate (OCR) at 3.85%, defying broad expectations of a rate cut.
At the time, RBA Governor Michele Bullock clarified that the decision to hold rates wasn’t a signal that further cuts were off the table, but rather a reflection of the board’s need for more data. She emphasized the importance of seeing quarterly CPI figures and confirming that inflation was tracking within the target range before moving forward with any rate reductions.
Deputy Governor Andrew Hauser reinforced Bullock’s message earlier this month, urging markets to focus on the RBA’s forecasts for insight into the future path of interest rates.
"Our forecasts and what we try to do is take account of all of the available information and say, look, what is the outlook for inflation, unemployment and growth and so forth, conditioned on a particular path for interest rates," Hauser said.
Inflation in Australia continues to ease, with the June quarter CPI confirming the downward trend. Both headline and trimmed mean inflation declined, as annual CPI fell to 2.1% from 2.4% in the previous quarter, and trimmed mean inflation dipped to 2.7% from 2.9%.
Other factors include the nation's unemployment rate, which edged up slightly to 4.2% in June, from 4.1% in May, but remained historically low.
"The CPI together with the labor force data reinforce the economy is performing as expected and the RBA monetary policy board should continue their cautious easing cycle in August," Allen said.
Global uncertainty, however, remains a factor. On 31 July, US President Donald Trump signed an executive order revising tariff agreements with several trading partners. Countries not included in the update – such as Australia – will continue to be subject to a 10% base tariff on exports to the US.
"Compared to May, the global situation is more assured," Allens said. "Risks around the worst‑case outcomes for trade policy have fallen. The effective tariff rate looks settled at 19% and Australia’s base line 10% tariff has been locked in. Compared to the extreme uncertainty in May, we suspect this will play less into the forecasts and risks this time around."
"Several factors will enable the board to cut in August, including the June rise in unemployment, the 0.6% quarter-over-quarter increase in the trimmed mean in Q2 and what we expect will be RBA staff forecasts likely showing trimmed mean inflation around the mid-point of the target band," according to a note from ANZ.
Westpac chief economist Luci Ellis added: "Normally, monetary policy decisions should not come down to a single number tipping the balance. But once again, the latest read for underlying inflation has been material for the upcoming decision.
"Last week's data confirmed that inflation is on track to return sustainably to the mid-point of the target range, giving the [monetary policy board] the go-ahead for an August rate cut," the economist continued. "Beyond August, we believe three more rate cuts are in store for the rest of the cycle – in November, February [2026] and May [2026] – bringing the cash rate to the lower end of neutral at 2.85%."
