RBA interest rates: Reserve Bank mulls a couple more rate cuts in the next six months

A fourth interest rate cut looks likely later this year after the Reserve Bank revealed growing confidence that unemployment and inflation were on the right track.

The RBA dropped interest rates by 25 points on 12 August — the third move since February — to 3.6 per cent.

Minutes from that meeting released on Tuesday showed three key reasons why one or two more cuts would be on the radar in the coming six months.

Slowing inflation, the easing jobs market, and the lingering threat of a global slowdown are pushing the RBA towards further mortgage relief.

But the RBA will keep a close eye on data before locking in decisions and will be cautious about the potential for inflation to bounce back from the dead.

The white hot jobs market has slowed in recent months and unemployment modestly lifted to 4.2 per cent.

That’s left Governor Michele Bullock’s board feeling more comfortable that the blistering worker shortages weighing on the economy since the pandemic have softened.

Much of the strength in employment growth was generated by government spending, however, so the RBA will watch whether the private sector can pick up the slack and drive new job creation.

Forecasts show the RBA must loosen the reins a little bit further to ensure the jobless rate stays sustainable and to keep inflation under control.

Core inflation — the Reserve’s preferred measure because it strips out volatility — was expected to stay close to 2.5 per cent.

There will also be a silver lining for borrowers amid the chaos of US President Donald Trump’s trade war.

The RBA thinks the trade storm will push down prices in Australia as Asian countries shift their exports out of the world’s biggest market and look for alternative buyers.

But there’s also no need to rush further rate cuts and the board will judge each move based on the latest data available at the time.

The biggest potential factor that would spark rapid rate cuts would be a major global shock, particularly given ongoing trade tensions.

Ms Bullock’s board repeated warnings that financial markets seemed to be ignoring the potential downside risks facing the international economy.

Australian share markets have been pushing record highs in recent weeks and the ASX200 broke through the 9000 point barrier for the first time. Risk premiums remained low even amid tariff uncertainty.

That might be backed by fundamentals, the board said. But it might not.

“An alternative view was that financial markets were too sanguine about risks,” the RBA warned in the minutes.

“If so, sufficiently material or persistent news that contradicted the benign outlook currently priced in by financial markets could trigger heightened risk aversion and a sharp correction in asset prices.”

ANZ’s Madeline Dunk forecast just one more cut, in November, with the cash rate to remain at 3.35 per cent “for an extended period”.

“The tone of the minutes was in line with Bullock’s press conference,” she said.

“The decision to cut the cash rate was unanimous, and there was no discussion around the prospect of a larger cut or a pause. The discussion around the policy outlook centred around the pace of future easing.”

Markets had overnight predicted a 68 per cent chance of a cut on 30 September but economists have widely cautioned that the RBA will most likely wait until November.