UOB economist Lee Sue Ann notes that softer Australian Gross Domestic Product (GDP), easing inflation and a cooling labour market have reduced pressure on the Reserve Bank of Australia (RBA) to tighten further. She expects the cash rate to be held at 4.35% through at least 1Q27, with domestic demand remaining a drag even as external demand for commodities offers some support.

RBA seen on extended policy hold

"Last month, the RBA lifted the cash rate by 25 bps to 4.35%, with an 8–1 vote, fully unwinding last year’s easing and reinforcing its commitment to curbing persistent inflation."

"With softer GDP, easing inflation, and a cooling labour market, the urgency for further RBA tightening has diminished, and the cash rate is likely to be kept at the current 4.35% in the near term despite still-elevated core inflation."

"Taken together, softer headline inflation, a cooling labour market, stagnant wages, and today’s softer GDP outturn reduce the urgency for further tightening, even as core inflation remains elevated."

"Looking ahead, we expect the Australian economy to slow further as the cumulative impact of restrictive monetary policy continues to filter through to households and businesses."

"As such, we expect the RBA to hold the cash rate at 4.35% at its upcoming meeting on 16 Jun, while maintaining a tightening bias as it continues to assess the evolution of inflation dynamics and broader economic conditions."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)