More clarity needed before another rate cut...

RBA Seeks Sustained Inflation Reduction Before Further Rate Cuts

The Reserve Bank of Australia’s (RBA) decision last week to hold the cash rate steady at 3.60% was widely anticipated.

Following a 0.25% cut in August, any further rate reductions will likely depend on clearer signs of weakening demand and a sustained decline in inflation. While the economy continues to recover strongly, the labour market remains resilient, and price pressures are proving persistent.

Given ongoing tightness in the labour market and recovering domestic demand, the disinflation process is expected to be slow. Though tariff-related uncertainty has peaked, it remains elevated, and the global economic outlook is relatively strong. These factors support the RBA's cautious approach.

Our base case remains that the RBA will deliver one more 0.25% cut before year-end, bringing the cash rate to 3.35%. However, stronger-than-expected inflation in August and signs of a firming economic recovery raise the risk that the central bank may delay further easing.

The upcoming third-quarter Consumer Price Index (CPI) data, due on October 29, will be a key determinant of the RBA’s path forward.

Rick Maggi CFP, Financial Advisor Perth