Just One More RBA Rate Cut This Year: Standard Chartered

Above: File image of RBA Governor Bullock.

The Reserve Bank of Australia (RBA) is tipped to cut rates just once more in 2025, says Standard Chartered FX and Macro Strategist Nicholas Chia.

Standard Chartered downgraded the number of cuts it had planned for Australia following clear guidance from the central bank's governor, Michelle Bullock, that markets must keep expectations low.

"Bullock pushed back against market pricing of RBA rate cuts – with swaps at the time of the press conference pricing in another c.50bps in cuts by the December meeting," says Chia.

The RBA lowered the cash rate by 25 basis points to 4.10%, a move widely expected by markets and analysts.

Bullock resisted expectations of multiple cuts, stating that the adjustment was a reversal of November 2023's precautionary hike rather than the start of an aggressive easing cycle.

"We cannot declare victory on inflation yet," said Bullock. "Recent labour market data have been unexpectedly strong, suggesting that the labour market may be somewhat tighter than previously thought."

Even though inflation has been coming down - Q4 trimmed mean CPI slowed to 3.2% from 3.4%, a sharper decline than the RBA had forecast - Bullock signaled that policymakers would not rush to cut further.

She noted that Australia’s rate path may differ from other developed markets and that there "may not be quite as much room to go" in further easing.

Persistently poor productivity growth could keep unit labour costs elevated, limiting the RBA’s scope for deeper rate reductions, Chia notes.

The central bank is also likely to monitor the potential impact of pre-election fiscal measures, with the government set to unveil a cost-of-living support package in late March.

Chia notes that the RBA could still cut rates more aggressively if core inflation—measured by trimmed mean CPI—falls faster than expected or if labour market conditions deteriorate significantly.

Standard Chartered now expects only one more 25bps cut in Q3, instead of two cuts in Q3 and an additional cut in Q2, as previously forecasted. As a result of the revised outlook, it now projects a year-end RBA cash rate of 3.85%, up from its prior estimate of 3.35%.