“Our feeling at the moment is that is far too confident. We've removed a bit of restrictiveness. We are still restrictive and we are waiting for more evidence that we're getting inflation sustainably back in the band before we are willing to move again.”
The cut was widely expected, with the market pricing in an over-90% chance of easing prior to the meeting. (See MNI RBA WATCH: RBA Expected To Cut, Despite Reservations) Traders have now priced in a further 25bp move at the May meeting and a 3.7% cash rate by December.
“We want to see more information particularly on inflation and the labour market before we decide what we do next,” Bullock added.
UPDATED FORECASTS
The RBA’s updated forecasts showed trimmed-mean inflation flatlining at 2.7% by June, 20bp higher than its 2.5% midpoint target but 30bp lower than its November outlook. The Reserve sees unemployment rising a further 20bp to 4.2% by June and staying there until 2027, lower than the prior outlook’s 4.5% peak.
Bullock stressed the forecasts were predicated on a market path cash rate of 3.4% by June 2026, noting the RBA’s goal was to have trimmed mean at the midpoint, suggesting less easing than traders had priced in. “If we really want to hit 2.5%, which we do, then that market path on the basis of the information we have at the moment is unrealistic,” she continued.
While the RBA’s trimmed mean forecast topped out at 2.7%, Bullock highlighted greater uncertainty around more distant predictions.
ARGUMENTS AGAINST
Labour market strength remains concerning and weighed against a cut during the Board’s deliberations, she said. “One of the stronger arguments on the side of not doing anything was to wait for more data to see what is exactly happening to the labour market," she explained. "Is that feeding through to wages pressure and is it feeding through to inflation?”
She noted the labour market’s resilience had not aligned with the Bank’s expectations. (See MNI: Weak Q4 CPI Needed For Early 2025 RBA Cut, NAIRU Rethink)
“We are continuing to challenge ourselves on that, and continuing to engage with others outside this organisation who have quite different views than us, because I think that it is worth really checking ourselves on this and making sure that we really are certain that we have a good idea of how tight the labour market is, and what the implications of that might be.”
The Board will next decide the cash rate on April 1.