RBA August Meeting Minutes: Expect further interest rate cuts over the next year, easing pace depends on economic data.

Minutes from the Reserve Bank of Australia's meeting on August 11th and 12th showed that policymakers expect to further cut interest rates in the next year to achieve their policy goals, with the pace of rate cuts possibly depending on economic data. The Reserve Bank of Australia cut its key interest rate to 3.6% two weeks ago, and policymakers described this rate level in the minutes as "still somewhat restrictive." The Reserve Bank of Australia stated in its statement two weeks ago: "Given that underlying inflation continues to fall towards the midpoint of the 2-3% target range and the labor market has loosened slightly as expected, the Board believes that further easing of monetary policy is appropriate." The central bank also added: "Given the high degree of uncertainty around total demand and potential supply, the Board remains cautious about the economic outlook." The Reserve Bank of Australia has already cut rates by 75 basis points during the current easing cycle, bringing rates to their lowest level since April 2023. With the labor market still tight and weak productivity growth, the focus is now on the potential magnitude of future rate cuts. The minutes stated: "All Board members agreed thatbased on the information available at the time of the meetingit seems necessary to further decrease the cash rate over the next year in order to sustainably return inflation to the midpoint of the target range while maintaining full employment." "They also agreed that the pace of rate cuts should be determined by the data received at successive meetings." The minutes highlighted the Reserve Bank of Australia's cautious considerations in the face of a tight labor market and potential inflation predicted to remain above the mid-point of the 2%-3% target range. At the same time, signs of a recovery in private demand have emerged, while uncertainty remains regarding the "neutral rate." The minutes stated that, considering these factors, the Reserve Bank of Australia may need to adopt a gradual easing path. Board members also discussed the necessity of accelerating rate cuts in a scenario where the labor market is "almost balanced." Additionally, they discussed whether to change the pace of reducing government bond holdings. The Board sought the opinion of the newly established Governance Committee, and decided to continue reducing holdings after the bonds mature, stating that this issue "is no longer actively being considered." As the Reserve Bank of Australia cuts rates, global policymakers are also working to address the economic impact of the increased US tariffs. The currency market expects the Federal Reserve to ease monetary policy at the September meetingthey have kept rates unchanged this year to assess whether tariff shocks will lead to sustained price pressures. Meanwhile, the US labor market, as the other half of the Federal Reserve's "dual mandate," is showing signs of weakening momentum. Other central banks such as the European Central Bank, Bank of Canada, and Bank of England have also implemented easing measures over the past few months. Economists predict that the Reserve Bank of Australia will cut rates twice before March 2026, bringing the cash rate down to 3.1%, followed by a pause. In this cycle, the Reserve Bank of Australia's actions have been relatively cautious. Reserve Bank Chair Michele Bullock has repeatedly emphasized that, as policy rates were not raised as high as those of other central banks during the 2022-23 tightening cycle, the central bank may not need to cut rates as aggressively as others. Data shows that Australian economic growth rebounded in the three months ending in June, mainly driven by household consumption and trade. The labor market remains tight, with the unemployment rate at 4.2%. The Reserve Bank of Australia slightly lowered its growth forecasts for Australia's Gross Domestic Product in its latest projection, while core inflation is expected to stay near the midpoint of the target range for most of the forecast period. The Reserve Bank of Australia stated that Board members "emphasized the need to closely monitor data and guide decisions based on how their assessment of risk evolves," and that the Board will continue to focus on its mandate.