Outlook for May RBA meeting: Maintain a cautious stance
2025-05-19
■ The Board is expected to cut the policy rate to 3.85% in May, but financial markets have already accounted for this.
■ The RBA is anticipated to clarify that: (1) Australia's price and employment situation remains strong; (2) the US tariff measures have minimal impact on Australia.
The Reserve Bank of Australia (RBA) is scheduled to hold a board meeting on May 19-20. The market generally expects the official cash rate to be reduced from 4.10% to 3.85%. The RBA is expected to further elaborate on its future policy direction alongside the Statement on Monetary Policy (SMP) at the May board meeting, which is likely to attract considerable attention. However, the anticipated 0.25 percentage point rate cut has already been factored into market expectations, resulting in a limited direct reaction from financial markets following this meeting.
The Australian Consumer Price Index (CPI) for the first quarter, released on April 30, indicated that the year-on-year growth rate of the trimmed mean CPI, a core inflation measure of concern to the RBA, slowed to 2.9%. This aligns with the Board of Governors' forecast from April and marks the first return to the 2%-3% target range set by the RBA since the second half of 2021. Consequently, expectations in the Australian short-term money market for a rate cut at the May meeting have intensified.
It is anticipated that the RBA will not adopt an aggressive stance on interest rate cuts at this meeting. During the April meeting, the specifics of the US "reciprocal tariffs" had not yet been revealed, but the minutes indicated that a radical interest rate cut policy was not confirmed. The current focus primarily revolves around two aspects: (1) The trends in prices and the labor market are mostly consistent with the RBA's expectations and remain robust; (2) The risk of US tariff measures exacerbating the situation has diminished. (1) While February's employment data was disappointing, the figures for March and April exceeded market expectations, suggesting that February's weakness may be temporary. In the fourth quarter of last year, Australia's real GDP growth rate rebounded to 1.3% year-on-year, demonstrating continued economic growth. (2) Australia's trade with the United States was initially in a deficit position, and the direct pressure from the US government remains relatively weak. Additionally, following the China-US ministerial talks on May 10-11, market apprehension towards US-China trade tensions has notably diminished, enhancing the credibility of the RBA's April assessment that "the impact on Australia's GDP growth and inflation rate is relatively minor."
In summary, it is expected that the RBA believes the Australian economic outlook aligns closely with established expectations and will remain cautious regarding further interest rate cuts as it evaluates the ramifications of US tariff policies. The second Albanese government commenced its term on the 13th of this month, and negotiations with the United States are anticipated to be underway. Including this rate cut, the market continues to expect the official cash rate to decrease by approximately 0.75 percentage points by the end of the year.
■ The RBA is anticipated to clarify that: (1) Australia's price and employment situation remains strong; (2) the US tariff measures have minimal impact on Australia.
The Reserve Bank of Australia (RBA) is scheduled to hold a board meeting on May 19-20. The market generally expects the official cash rate to be reduced from 4.10% to 3.85%. The RBA is expected to further elaborate on its future policy direction alongside the Statement on Monetary Policy (SMP) at the May board meeting, which is likely to attract considerable attention. However, the anticipated 0.25 percentage point rate cut has already been factored into market expectations, resulting in a limited direct reaction from financial markets following this meeting.
The Australian Consumer Price Index (CPI) for the first quarter, released on April 30, indicated that the year-on-year growth rate of the trimmed mean CPI, a core inflation measure of concern to the RBA, slowed to 2.9%. This aligns with the Board of Governors' forecast from April and marks the first return to the 2%-3% target range set by the RBA since the second half of 2021. Consequently, expectations in the Australian short-term money market for a rate cut at the May meeting have intensified.
It is anticipated that the RBA will not adopt an aggressive stance on interest rate cuts at this meeting. During the April meeting, the specifics of the US "reciprocal tariffs" had not yet been revealed, but the minutes indicated that a radical interest rate cut policy was not confirmed. The current focus primarily revolves around two aspects: (1) The trends in prices and the labor market are mostly consistent with the RBA's expectations and remain robust; (2) The risk of US tariff measures exacerbating the situation has diminished. (1) While February's employment data was disappointing, the figures for March and April exceeded market expectations, suggesting that February's weakness may be temporary. In the fourth quarter of last year, Australia's real GDP growth rate rebounded to 1.3% year-on-year, demonstrating continued economic growth. (2) Australia's trade with the United States was initially in a deficit position, and the direct pressure from the US government remains relatively weak. Additionally, following the China-US ministerial talks on May 10-11, market apprehension towards US-China trade tensions has notably diminished, enhancing the credibility of the RBA's April assessment that "the impact on Australia's GDP growth and inflation rate is relatively minor."
In summary, it is expected that the RBA believes the Australian economic outlook aligns closely with established expectations and will remain cautious regarding further interest rate cuts as it evaluates the ramifications of US tariff policies. The second Albanese government commenced its term on the 13th of this month, and negotiations with the United States are anticipated to be underway. Including this rate cut, the market continues to expect the official cash rate to decrease by approximately 0.75 percentage points by the end of the year.