TOL - 19th Feb, 2025
'We do feel optimistic': RBA cuts rates and delivers positive inflation forecasts
The RBA now forecasts core inflation to fall to 2.7% by June 2025 and stay at that rate through to 2027.
Reserve Bank governor Michelle Bullock declared "we do feel optimistic" about the Australian economy at the central bank's media conference on Tuesday afternoon, as it lowered forecasts for core inflation to fall to 2.7% from mid-2025 through to 2027.
Assuming the RBA's latest forecasts are accurate, the central bank has also factored in a cash rate of 4% as at June 2025 and 3.6% as at December 2025. That equals another two 25 basis point cuts this year, with more relief for home loan borrowers and a potential boost to a sharemarket that has already hit record highs in 2025.
"We do feel optimistic, but we're also alert to the risks," Ms Bullock told the media conference.
"With those forecasts it [trimmed mean inflation] does come back to 2.7%, they're very uncertain as we go further out. But if it eventuated like that, which it probably won't, but if it did that's not getting us back to the middle of the band [2.5%] and as I said earlier we do want to aim at the middle of the band....
"The point is the current market path that gets us there makes us alert to the risks that if we cut too much and too soon then we mightn't get back to the middle of the band."
The S&P/ASX 200 briefly pared losses after the widely priced in decision this afternoon, before losing a small amount of ground as traders digested the result to finish down 0.66% to 8481 points.
Economists react
Bank economists widely described the RBA's decision as a 'hawkish cut' as the governor reiterated that the path to more cuts is dependent primarily on future data showing inflation is easing.
In particular services inflation in Australia has remained stubbornly high at 4.3% in the December quarter due to persistently strong price rises in rents, healthcare, insurance, hairdressing and eating out.
However, trimmed mean inflation for the December quarter finished at 3.2%.
"Governor Bullock reinforced the hawkish framing to the cut," National Australia Bank told investors. "Ms Bullock noted the RBA wants to see easing wage costs, disinflation in market services and housing inflation continuing to ease. One gets the impression the RBA is not rushing to cut rates."
National Australia Bank's economics team now forecasts the cash rate to ease to 3.1% by early 2026.
AMP now expects the RBA to hold in April and then cut in May and August taking the cash rate to a low of 3.6% with another cut next year.
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Tom covered markets as a reporter and commentator at the Australian Financial Review for nearly five years and worked as the Managing Editor of The Motley Fool during a period of rapid growth. Prior to that Tom worked in funds management at the Bank of New York Mellon in London and as a holder of professional investment qualification the Investment Management Certificate is eligible for membership of the CFA Society of the UK.
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Tom covered markets as a reporter and commentator at the Australian Financial Review for nearly five years and worked as the Managing Editor of The Motley Fool during a period of rapid growth. Prior to that Tom worked in funds management at the...
Tom covered markets as a reporter and commentator at the Australian Financial Review for nearly five years and worked as the Managing Editor of The Motley Fool during a period of rapid growth. Prior to that Tom worked in funds management at the...
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