By Devayani Sathyan
BENGALURU (Reuters) -Australia’s central bank will cut interest rates by 25 basis points to 3.60% in August following a surprise pause this week and deliver one more cut next quarter, according to economists in a Reuters poll.
The Reserve Bank of Australia held the cash rate steady for a second time this year on Tuesday, wrong-footing markets, as most board members await confirmation that inflation is sustainably heading towards the central bank’s 2.5% midpoint of its 2–3% target range.
“For July, the market simply overinterpreted the RBA’s messaging about the speed at which they will cut the cash rate. In our view, consecutive cuts in both July and August would have been an overreach. This seems to be what the RBA was also thinking,” said Craig Vardy, Australasia head of fixed income at BlackRock.
Vardy correctly predicted Tuesday’s rate decision in a Reuters poll last week.
“They remain on a path to lower the cash rate but will remain cautious.”
The last time the RBA diverged from market expectations was in mid-2023 during its stop-start tightening cycle.
So far this year the RBA has lowered rates by 25 basis points in February and May but held steady in April and July.
With second quarter inflation data due later this month and expected to be within the RBA’s target range economists still see an August rate cut as likely.
All 30 respondents in the July 8-9 Reuters poll expected the RBA to cut its official cash rate by 25 basis points on August 12 to 3.60%.
“This (decision) doesn’t change our view at all. We are forecasting an August cut because we think the RBA will have sufficient inflation data to support this outcome. Our view is another 50bps of cuts will be delivered in 2025,” Vardy added.
All four major banks – ANZ, CBA, NAB and Westpac – also predicted a cut in August.
Among 27 economists who had views until end-2025, 25 expected rates to fall further to 3.35%. Two saw rates at 3.10%.
Median forecasts showed one additional rate cut by end-March to 3.10% – later than previously expected – with rates then expected to remain steady through 2026.
That marked a shift from just a week ago, when slightly over half of economists – 16 of 33 – expected the cash rate to reach 3.10% by end-2025.
“It doesn’t fundamentally change the fact rates will still have to go lower from here because they still remain quite restrictive. It just means the RBA probably will have to move at a more gradual pace than we previously expected,” said My Bui, economist at AMP.
(Other stories from the July Reuters global economic poll)
(Reporting by Devayani Sathyan; Polling by Susobhan Sarkar and Pranoy Krishna; Editing by Jonathan Cable & Shri Navaratnam)
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