Central Bank holds fire in April

Bank pauses easing cycle as expected: At its meeting on 31 March–1 April, the Reserve Bank of Australia (RBA) paused its monetary policy easing cycle, holding the RBA cash rate target at 4.10%. The move had been priced in by markets and followed a 25 basis points cut in February, the first rate reduction since November 2020.

Policymakers adopt a wait-and-see approach: The RBA noted that inflation has eased significantly since its peak in 2022 amid tight monetary policy and that underlying price pressures have continued to evolve in a manner consistent with its February forecasts. Moreover, the Bank noted that private demand remains sluggish and wage pressures have eased. Still, the RBA highlighted mounting uncertainty regarding the global economic outlook, particularly concerning U.S. tariff policy. In addition, the Bank pointed to signs of a persistently strong labor market. These two factors dissuaded a rate cut, with the RBA stating that it needs to be “confident” that inflation will sustainably return to the midpoint of its 2.0–3.0% target band.

Loosening cycle to resume in Q2: In its communiqué, the RBA struck a more dovish tone than in previous meetings, striking previous forward guidance that the Bank was “cautious on prospects for further policy easing”. In a subsequent statement, Governor Michele Bullock stressed that the RBA will adopt a data-dependent approach amid significant uncertainty on the impact of a deteriorating trade background on economic activity and inflation. Still, our panelists see room for another quarter-point cut in Q2, and then another 25–50 basis points of reductions by the end of 2025, expecting inflation to remain within target and GDP growth weak by pre-pandemic standards overall in 2025. That said, higher-than-expected core inflation is an upside risk. The Bank will reconvene on 19–20 May.

Panelist insight: EIU analysts commented: “Until the US government's plans become clearer, we remain of the view that the RBA will cut the OCR by another 75 basis points across the remainder of 2025, with the next reduction coming in May. Relative to the February meeting, the risk of these cuts coming more quickly has risen, and the likelihood of them being extended over a longer period has fallen.” Nomura’s Andrew Ticehurst and David Seif were more hawkish: “The market is more confident of a May cut than we are, and is pricing a lower terminal rate too. […] Overall, we think this communication buys the RBA complete policy flexibility, which is valuable for a central bank in uncertain times. Our policy outlook remains unchanged; we still narrowly lean towards a 25bp May rate cut, and another in August.”

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