RBA far less gung-ho about rate cuts than financial markets

Financial markets continue to point to a near-certain rate cut in May but you wouldn’t know from reading the RBA’s Minutes of the Monetary Policy Meeting released on Tuesday (15 April).

What is clear is that the chances of a double rate cut – forecast by NAB – is almost completely off the table.

RBA Governor Michele Bullock and her new Monetary Policy Board used their inaugural meeting to quieten down the absolute racket being made by calls for a rate cut.

The vast bulk of the 4,451-word assessment of its 1 April decision to hold rates steady at 4.10 per cent was dedicated to offshore economic events and unpredictability.

US President, and chief economic gymnast-in-charge, Donald Trump was not named but was the undeniable focus of the RBA’s deliberations on what to do next. Tariffs were mentioned 18 times.

Although the money markets have priced in a succession of rate cuts throughout 2025, the RBA’s rhetoric remains stoically positioned atop the fence.

“Members judged that it was not appropriate at this stage for monetary policy to react to the potential risks that could move outcomes in either direction.

“It was nevertheless important to remain alert to the evolving balance of risks.

“Members observed that the May meeting would be an opportune time to revisit the monetary policy setting with the benefit of additional data about inflation, wages, the labour market and trends in economic activity, along with a fresh set of economic forecasts and further information about the likely evolution of global trade policies.

“Collectively, this information would have a considerable bearing on their decision.”

That, taken on its own, does not necessarily translate into an imminent rate cut, let alone an upsized one above 0.25 per cent.

It may just be that the RBA is trying to hose down a sense of panic about economic uncertainties fuelled by the make-it-up-as-you-go US tariff policy settings.

Underlying inflation is now back in the RBA’s target band, which gives the RBA the scope to cut rates if it believes such a move won’t reignite the CPI (consumer price index).

Canstar on Tuesday said that three lenders took the knife to fixed rates this week, including big four bank NAB, in a sign banks are factoring in the possibility of a rate cut at the RBA’s next meeting.

RBA’s each-way inflation bet

The RBA will also be playing a wait and see game as to what China and other countries do in response to the massive tariff impost they’ve incurred. Should they turn to markets like Australia in an attempt to offload a discounted oversupply of goods, that could have an inflationary impact.

On the other hand, rates cut could provide the necessary stimulus if households, hit by the stock market rollercoaster that has reduced superannuation balances and confidence alike, decide to stop spending.

The effects of the US-led chaos are yet to be felt, so it seems unlikely the RBA will overreact.

The RBA minutes essentially said as much in highlighting the potential upside and downside effects of a global trade war.

“Assuming the global tariffs announced so far and that the Australian Government did not impose retaliatory tariffs, a model-based scenario showed that the effects on GDP growth and inflation in Australia could be relatively modest.

“This reflected Australia’s limited direct trade exposure to the United States, additional policy support in China and Australia’s flexible exchange rate.

“There were clear downside risks for Australian growth relative to this scenario, if tariffs and policy uncertainty have a greater effect on global growth than expected, if the spillovers to Australia are larger or if there were further material increases in tariffs in other economies, including those that are important for Australia.

“However, the risks to Australian inflation were more two-sided and would depend on the timing and relative size of the effects on aggregate demand and supply: weaker global demand and the possibility of trade diversion away from the United States could reduce inflation in Australia, but a larger exchange rate depreciation or more substantial global supply disruptions could increase inflation.”

Despite the RBA’s tentative tone, a rate cut still seems imminent but the Board is likely to keep some ammunition in the barracks before it risks creating a sense of panic that could follow a double rate cut.

Rents outpacing inflation

Any rate cut would be welcomed by borrowers but will do little to alleviate the problems facing renters.

Although landlords would have some repayment relief, vacancy rates around the country remain tight, keeping price pressure on rents.

The pace of rent hikes has eased significantly but is still tracking above the pre-Covid decade annual average of 2.0 per cent.

The March data from Cotality, formerly known as CoreLogic, showed that rental costs are still outpacing inflation.

(Source: Cotality)

In annual terms, rental growth is clearly slowing, easing from a cyclical peak of 9.7 per cent over the 12 months ending November 2021 to 3.8 per cent over the past 12 months – the slowest annual change in rents since March 2021.

Nationally, rents have risen 38.4 per cent over the past five years, more than double the 15.4 per cent rise seen in wages over the five years to December 2024.