UBS is maintaining its forecast that the Reserve Bank of Australia (RBA) will reduce the cash rate by 25 basis points in both August and November. This would bring the cash rate down to 3.35 per cent by the end of the year. UBS is a global financial services company providing wealth management, investment banking, and asset management services. The Reserve Bank of Australia is the central bank of Australia, responsible for maintaining financial stability and promoting sustainable economic growth.
While the RBA emphasised its full employment mandate in July, noting a robust labour market, UBS chief economist George Tharenou suggests that weaker jobs data from June, including a 0.2 percentage point increase in the unemployment rate, makes a rate cut next month highly probable. The unemployment rate averaged 4.2 per cent during the June quarter, aligning with the RBA’s projections.
The upcoming June quarter Consumer Price Index (CPI), scheduled for release on July 30, is a key data point. UBS anticipates it will be slightly above the RBA’s forecasts. According to Tharenou, only a significant upside surprise in inflation could prevent the expected August rate cut.
Tharenou added that further rate cuts beyond the anticipated 50 basis points would require several more months of weakening in the labour market, along with evidence that underlying inflation is on track to sustainably fall towards the RBA’s midpoint target. UBS believes that a sustained softening of both labour market conditions and core inflation will be necessary for the RBA to consider easing beyond the currently anticipated cuts.
