In the minutes of its April meeting, the Reserve Bank described its May meeting as an “opportune time” to revisit monetary policy settings, aided by fresh data on inflation, wages, the labour market, economic trends and global trade developments.
While the board remains confident its strategy to return inflation to the midpoint of the target band – while preserving employment gains – remains “on track”, it stressed that “it is not yet possible to determine the timing of the next move in interest rates”.
“Future decisions would, in each instance, depend on new information and its implications for the economic outlook,” the RBA’s minutes, released on Tuesday, read.
Members acknowledged there are risks to the outlook on both sides and reiterated that monetary policy is “well placed” to respond should international developments materially impact Australian activity and inflation.
“Given this, members agreed that it would be helpful if the board’s public communication following the meeting made it clear that the outcome of its next decision was not predetermined,” the minutes said – highlighting the RBA’s data-dependent approach and its priority to return inflation to target.
Earlier this month, economists predicted the RBA may need to pivot from inflation-fighting to economic stabilisation amid rising global trade tensions and heightened market volatility. Traders had ramped up expectations for a full 50 basis point cut in May.
However, after US President Donald Trump pressed pause on tariffs for dozens of countries last Wednesday, sentiment shifted. Deutsche Bank’s chief economist, Phil O’Donaghoe, for instance, reversed his earlier call for a supersized cut, tipping a 25 bp move instead.
Others, such as NAB, maintained a 50 bp cut remained in play, while Betashares called for an out-of-cycle reduction given April’s steep fall in consumer sentiment and the several-week gap before the RBA’s next scheduled meeting.
Despite the noise, the April minutes conveyed quiet confidence. Although global trade uncertainty had risen, the board noted that “the economy appeared to be tracking in line with the staff’s forecasts”.
The RBA did, however, warn that any significant increase in tariffs or trade restrictions could disrupt supply chains and sentiment, but said the net impact on inflation would depend on how these disruptions play out across demand and currency dynamics.
While noting that exporters are alert to global developments, the RBA highlighted sentiment among domestically focused businesses remains resilient.
“The implications for Australia of global tariff settings would also depend on how Chinese authorities respond, and members noted the Chinese authorities’ stated commitment to maintaining output growth around 5 per cent,” the RBA noted.
Importantly, it said, the board would need to monitor closely the implications of global developments for Australian inflation.
“Some of those developments could exert disinflationary pressure, including weak demand and the potential for trade diversion, but others could be inflationary, such as potential impairments to global supply chains and exchange rate depreciation.”
At its 31 March–1 April meeting, the board ultimately opted to hold rates steady, awaiting further clarity.
“Members judged that it was not appropriate at this stage for monetary policy to react to the potential risks that could move outcomes in either direction,” the minutes stated.
Looking ahead, the board recognised that global forces could push the Australian economy in either direction.
“Members agreed that the implications of global developments for the board’s policy decisions would depend on their effects on Australian activity, inflation and employment.”
The RBA’s last meeting occurred just before Trump’s so-called “Liberation Day”. Since then, global trade tensions have evolved, with some tariffs eased – though those on China remain in place.
In a speech last week, governor Michele Bullock reiterated the RBA’s focus on its dual mandate of price stability and full employment, while noting Australia’s financial system is well positioned to absorb external shocks.
“It’s too early for us to determine what the path will be for interest rates. Our focus remains on our dual mandate for price stability and full employment,” she said.
However, responding to the RBA’s minutes, CBA economist Belinda Allen maintained her expectation of a 25 basis point cut in May. She noted the minutes predate the escalation of the trade war, adding that since the RBA’s April meeting, financial market uncertainty and downside risks to global growth have intensified.
“The minutes today must be seen through this dated lens,” Allen said.
On Monday, the ASX 30 Day Interbank Cash Rate Futures May 2025 contract was trading at 96.05, indicating a 79 per cent expectation of an interest rate decrease to 3.60 per cent at the next RBA meeting.
