RBA Balances Jobs and Prices as Rate Cut Path Remains Uncertain

The Reserve Bank of Australia (RBA) has signaled that further interest rate cuts are likely to be necessary over the coming year, according to minutes from its August 11–12 policy meeting. The bank cut the cash rate by 25 basis points to 3.6%, marking the third reduction since February and aligning with ongoing efforts to support economic growth while managing inflation within its 2–3% target band. The minutes indicated that the central bank remains committed to a data-driven approach, with the pace of future easing determined by evolving economic conditions and incoming data [1].

Board members acknowledged the importance of balancing full employment with price stability, noting that inflation has been trending toward the mid-point of the target range. However, uncertainty persists regarding the neutral rate and spare capacity in the labor market, which could influence the timing and magnitude of further reductions. While some board members supported a gradual pace of easing, others considered that a faster approach might be warranted if the labor market weakened or if inflation undershot expectations [2].

The labor market, though easing from full employment levels, remains somewhat tight, with unemployment at 4.2% and job vacancies still elevated. Policymakers emphasized the need to remain attentive to economic data, particularly labor force figures and GDP readings, which will be critical in shaping the RBA’s forward path. Inflation expectations remain anchored, with headline inflation at 2.1% for the June quarter and core inflation near the mid-point of the target range [3]. However, global risks, including potential strains from U.S. tariff policy and a possible global slowdown, were also factored into the discussion, with the board acknowledging that these could tip the balance toward more aggressive easing [4].

Market participants and analysts have also weighed in on the RBA’s outlook. Belinda Allen, head of Australian economics at Commonwealth Bank, noted that the RBA could cut rates further if economic growth slows more than expected. Meanwhile, economists at JP Morgan anticipate a pause in September before a cut in November, with the cash rate eventually settling near 3.10% [5]. Investors are similarly pricing in a slower pace of easing, with less than a one-third probability of a September cut and near-full pricing for a November reduction [6].

The RBA also reviewed its asset purchase strategy during the meeting, deciding against accelerating the unwinding of its government bond holdings. It will continue to let bonds mature rather than actively reduce them at a faster pace. This decision reflects the central bank’s focus on maintaining flexibility in its policy toolkit as it navigates a complex economic environment [3]. Additionally, concerns over insolvencies and sectoral vulnerabilities—particularly in healthcare and financial services—highlight the broader economic challenges that the RBA must consider in its policy formulation [5].

Overall, the RBA remains cautious in its approach, prioritizing data and risk assessments to guide its decisions. While the central bank acknowledges the case for further rate cuts, the timing and pace remain contingent on how the labor market and inflation evolve in the coming months. This strategy reflects a broader trend among global central banks, including the ECB and BoE, which have also shifted toward easing policies amid cooling inflation and slowing growth [4].

Source: [1] Australia's RBA signals more rate cuts ahead, pace undecided (https://finance.yahoo.com/news/australia-central-bank-sees-more-014201173.html) [2] RBA Sees Need For More Rate Cuts; Decision To Be Data-Driven (https://www.rttnews.com/3568959/rba-sees-need-for-more-rate-cuts-decision-to-be-data-driven-minutes-show.aspx) [3] RBA Minutes: Further rate cuts likely needed in coming year (https://www.fxstreet.com/news/rba-minutes-further-rate-cuts-likely-needed-in-coming-year-202508260138) [4] RBA Minutes Show Pace of Future Easing Will Depend on Data (https://www.bloomberg.com/news/articles/2025-08-26/rba-minutes-show-pace-of-future-easing-will-depend-on-data) [5] Fast or gradual: RBA debate shapes rates outlook (https://michaelwest.com.au/fast-or-gradual-rba-debate-shapes-rates-outlook/) [6] The RBA Should Just Get on with the Job of Cutting Rates (https://smallcaps.com.au/rba-should-get-on-job-cutting-rates/)