Australia: RBA Cuts Rate and Surprises with Dovish Outlook – Standard Chartered

RBA Cuts Cash Rate to 3.85% Amid Dovish Signals

The Reserve Bank of Australia (RBA) has reduced its cash rate by 25 basis points to 3.85%, in line with market expectations. However, both the accompanying policy statement and Governor Michele Bullock's subsequent press conference revealed a dovish tone, suggesting that further easing could be on the horizon if trade tensions escalate or the labor market shows signs of weakness.

The RBA's decision comes after its recent assessment of inflation, which is now within the 2-3% target range. In its statement, the central bank shifted its focus away from solely "returning inflation to target" to instead emphasize its dual mandate of achieving both price stability and full employment. The bank now believes inflation risks are "more balanced," compared to its earlier assessment in February, where it had cautioned about slowing disinflation.

Standard Chartered’s economist, Nicholas Chia, points out that the RBA’s stance on inflation and the labor market indicates that the central bank may be more inclined to ease policy further if external factors, such as trade disputes or a cooling job market, continue to weigh on the economy. The shift reflects the RBA's cautious approach in preserving labor market progress, even though it acknowledges the uncertainty surrounding the full employment threshold.

In summary, while the RBA's current policy move was anticipated, the dovish undertones suggest that the bank remains flexible and could make additional rate cuts depending on future economic developments.