The Reserve Bank has signalled a potential rate cut as inflation falls within the target band, prompting a mixed reaction from economists and markets.
The Business Desk is a contributing writer covering business and public affairs for The Sydney Times.
The Reserve Bank of Australia has signalled that a rate cut may be imminent as inflation falls within the target band for the first time in 18 months. The September board meeting minutes revealed growing confidence among policymakers that the 4.35 per cent cash rate is restrictive enough to bring inflation back to the 2 to 3 per cent target range.
Headline inflation dropped to 2.8 per cent in the June quarter, down from a peak of 5.6 per cent in late 2022. The trimmed mean measure, which the RBA prioritises, fell to 3.1 per cent. Both figures are now within striking distance of the target band, prompting markets to price in a 65 per cent probability of a cut at the October board meeting.
The Australian dollar weakened to 65.8 US cents following the release of the minutes, while the ASX 200 rose 0.4 per cent. Bond yields fell across the curve, with the three-year government bond yield dropping to 3.72 per cent. Economists at Commonwealth Bank and ANZ have both brought forward their rate cut forecasts to October.
The RBA's shift comes amid softening labour market conditions. Unemployment has risen to 4.3 per cent, up from a low of 3.5 per cent in early 2024. Wage growth has moderated to 3.6 per cent annually, down from the 4.2 per cent peak recorded in mid-2023.
A 25 basis point cut would reduce monthly repayments on a $750,000 mortgage by approximately $118. For Sydney homeowners grappling with the highest median dwelling prices in the country, the relief would be welcome but modest. The CoreLogic Home Value Index shows Sydney prices have fallen 2.1 per cent over the past six months.
The RBA has been careful to note that a single cut would not constitute a loosening cycle. Governor Michele Bullock has repeatedly stated that the board will remain data-dependent and is prepared to hold rates steady if inflation proves sticky. The next quarterly inflation report, due in late October, will be the decisive data point.
Small business groups have welcomed the signal, noting that elevated borrowing costs have constrained investment across the hospitality and retail sectors. The Australian Industry Group reported that 34 per cent of its members cited interest rates as their primary constraint on growth.
The Reserve Bank of Australia statement provides the full board meeting minutes and economic outlook.
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