One more cut: Boyton

The Reserve Bank of Australia (RBA) is likely to deliver one more rate cut before the end of 2025, according to ANZ Head of Australian Economics, Adam Boyton, following the central bank’s August statement on monetary policy.

Speaking on the 5 in 5 with ANZ podcast, Boyton said ANZ Research continued to forecast a final 25 basis point cut in November with the cash rate to then stay at 3.35 per cent through 2026.

“[The RBA’s] assumption is the cash rate will be a little below 3 per cent at the end of next year, and a little above 3 per cent by the end 2027,” he said.

While markets often focus heavily on the cash rate assumption, that emphasis can be overblown, Boyton warned.

“Whether you have one or two cash rate cuts, [it] probably doesn't drive the forecast quite as much as the market might sometimes think,” he said.

The RBA’s inflation forecasts were broadly unchanged, with trimmed mean inflation forecast at 2.6 per cent and expected to decline gradually to 2.5 per cent by the end of 2027.

Labour market data also featured prominently in the RBA’s statement. Australia’s unemployment rate is forecast to hold at 4.3 per cent, unchanged from the central bank’s May forecast. However, the board’s post-meeting statement described the labour market as “a little tight”, a shift from previous language.

The RBA also revised down its assumption for trend productivity growth. This is not expected to impact inflation or interest rates, according to Boyton, because the RBA is “essentially assuming both demand and supply in the economy have been reduced by about the same”.

Global risks remain, but the more extreme downside scenarios flagged in May now appear less likely, Boyton said.