In a decision that has left millions of mortgage borrowers and the government disappointed, the Reserve Bank of Australia (RBA) has maintained the official cash rate at 4.10%. This announcement came after a two-day policy meeting, aligning with market expectations but underscoring the bank’s cautious stance on economic risks.
The RBA’s decision reflects ongoing global uncertainties and geopolitical tensions, particularly the potential impact of US President Donald Trump’s tariff policies. The central bank signaled its readiness to cut interest rates should these tariffs lead to a global economic slowdown. Trump’s reciprocal tariff plan, set to commence on April 2, promises to affect all nations, intensifying concerns beyond the existing tariffs on Australian steel and aluminum.
This month’s meeting marked the debut of the newly established monetary policy board, which includes recently appointed members Marnie Baker and Renee Fry-McKibbin. For the first time, board members individually voted on rate decisions, although these votes remain confidential. Fry-McKibbin, an academic economist, played a pivotal role in the RBA review advocating for the separation of interest rate-setting and governance functions.
The board expressed concerns over the global impact of recent US tariff announcements, noting their potential to erode confidence further if the scope broadens or retaliatory measures ensue. “Geopolitical uncertainties are pronounced,” the board stated, predicting adverse effects on global activity as households and firms might delay expenditures awaiting clearer economic prospects.
Domestic Economic Outlook and Rate Cut Speculation
Despite these challenges, RBA Governor Michele Bullock highlighted Australia’s relatively strong position, citing falling inflation and low unemployment. However, she cautioned about the risk of ‘stagflation,’ where growth slows while inflation rises—a scenario she described as “challenging.” “If growth slows but inflation picks up … then we’re in a slightly difficult world” she said.
The RBA aims to maintain inflation within its 2-3% target band. Recent quarterly inflation figures indicate the Consumer Price Index (CPI) rose by 0.2%, bringing annual inflation down to 2.4%. The latest monthly CPI indicator corroborates this trend, showing annual inflation at 2.4% through February. Upcoming quarterly data, due in late April, is expected to significantly influence future cash rate decisions.
While the market anticipated no change in April, many economists predict a rate cut in May. Commonwealth Bank economists see increased likelihood for such a move following recent inflation data. Westpac forecasts three rate cuts this year, projecting a cash rate of 3.35%. National Australia Bank anticipates cuts in May, August, and possibly November, foreseeing a rate of 3.1% by February 2026. Meanwhile, ANZ predicts one more cut in August, lowering the rate to 3.85%.
The RBA’s next meeting is scheduled for May 19-20, shortly after the federal election on May 3. The election results, along with the latest federal budget, quarterly inflation data, and international trade developments, will likely shape the central bank’s subsequent decisions. As Australia navigates these uncertain times, the RBA remains vigilant, prepared to adjust monetary policy to safeguard economic stability amidst global trade tensions.
