Is the market getting ahead of itself amid RBA | Australian Markets

Industry gamers have reacted to the Reserve Bank of Australia’s (RBA’s) anticipated – albeit delayed – official money price discount by 0.25 per cent, however confirmed some disagreement on the outlook for future money price cuts.

While most agreed that there was nonetheless room for at the least one, if not more, additional price cut earlier than the finish of this yr, one fund supervisor has warned that the market might be getting ahead of itself by pricing in further price cuts – given how mistaken it was about final month’s shock maintain.

“The impact of monetary policy is never cut and dried. Given there is plenty of strength in the economy already, we’d need to see how the existing rate cuts play out before factoring in any additional easing,” VanEck’s Head of Investments & Capital Markets, Russel Chesler, stated.

“Too many price cuts run the risk of rising inflation and probably over-heating the property market, making it tougher for first home consumers. National dwelling values rose by 0.6% in July, making the sixth straight month of positive factors, with each capital metropolis recording a rise in property costs for the month, in accordance with the latest information from Cotality.

“There has additionally been growth in shopper spending, with the ABS reporting 4 straight quarters of quantity growth in retail gross sales. This is supported by the annual earnings we’re seeing from a number of shopper discretionary corporations in the present reporting season.

“It might be fascinating to see how the unemployment information seems to be on Thursday. While the bounce to 4.3% pushes unemployment out of the tight vary it been caught in, we might not be shocked to see it revert back to a quantity nearer to the 4% mark.

“Until the unemployment rate starts trending higher, and the trimmed mean inflation gets closer to the 2% mark, we don’t see any cause to expect further rate cuts for this year.”

While some asset managers famous the RBA’s more “dovish” stance in its quarterly Statement of Monetary Policy, it wasn’t enough for others to totally sprint hopes of additional rate of interest cuts this yr.

“The RBA delivered its third 25bps cut in August, taking the cash rate to 3.6%. This is consistent with our view and in line with the market’s expectation,” Kellie Wood, Head of Fixed Income at Schroders, stated.

“However, the latest spherical of forecasts in the Statement of Monetary Policy is more dovish than anticipated, with growth revised decrease, and inflation to lastly attain 2.5%, the center of the goal band, by December 2027. This is regardless of a regular unemployment price of 4.3% over the projected horizon.

“We retain our view that the market is fully priced for the RBA’s easing cycle and prefer to be owing interest rate risk further out the curve.”

“It is now clear that the Board was waiting for the June quarter CPI figure before pulling trigger on further cash rate cuts,” Darryl Bruce, Executive Director Capital Markets at Income Asset Management, stated.

“Both the headline CPI price for the June quarter at 2.1%, and the trimmed imply at 2.7% got here comfortably within the RBA’s goal vary. Cutting this month can be more in keeping with the Board’s acknowledged purpose of chopping in a ‘cautious and gradual’ method.

“Given that the decision was widely expected we have seen very little impact on the market thus far. Further cash rate cuts are anticipated later in the year but, as always, these will dependant on the economic dataflow in the coming months.”

Vanguard’s Senior Economist, Dr Grant Feng, famous the RBA’s shift to a more dovish outlook however steered it wouldn’t put a full stop to price reductions.

“Despite progress on inflation, supply-side constraints remain a challenge. Productivity growth continues to lag, while robust wage increases have pushed unit labour costs to 5.1% YoY, well above levels consistent with the RBA’s inflation target. With the labour market still tight, upward pressure on costs is expected to persist, suggesting that the disinflation process will be gradual,” he stated.

“Given these dynamics, we count on the RBA to keep up a cautiously dovish stance, with additional price cuts more likely to be measured and incremental. Looking ahead, we count on the quarterly trimmed imply inflation to stay within the RBA’s goal band, with additional moderation as the results of financial easing filter via.

“With growth showing signs of recovery and the unemployment rate stabilising, the magnitude for additional rate cuts appears modest. On balance, we expect the combination of disinflation progress and supply-side constraints will result in the RBA undertaking a cautiously dovish stance, with further rate cuts to 3.35% by end of this year.”

Similar sentiments have been echoed by HSBC’s Chief Economist, Australia, NZ & Global Commodities, Paul Bloxham.

“Our working assumption is that the RBA will have the ability to cut in This fall 2025 and Q1 2026, to three.10%, as the international disinflation arrives. However, we see a risk that weak productiveness and a robust rise in the home value base in a totally employed economic system, leaves home inflation too high to permit additional price cuts.

“The RBA’s assertion has a working assumption that the money price will comply with the market pricing pathway, with two-to-three more 25bp cuts factored in. However, as all the time, this isn’t a dedication from the RBA, simply a working assumption.

“Our reading is that the commentary from the RBA today was fairly agnostic about whether there will be further cuts from here, with the central bank emphasising that it has considerable optionality.”

PIMCO’s Executive Vice President and Head of Australia Portfolio Management, Adam Bowe, cited the risk of a “steeper rate-cutting cycle” given the influence of international trade coverage uncertainty.

“Despite lowering the cash rate today monetary policy remains restrictive and this policy setting continues to weigh on growth and inflation. The RBA easing cycle is far from complete,” he stated.

“With underlying inflation remaining within the RBAs goal band of 2-3% for the previous three quarters, the economic system growing beneath pattern, and rising international dangers round geopolitics and trade, the time for restrictive financial coverage has now handed.

“Today’s assembly final result is in keeping with our medium time period view that the RBA will proceed to ease coverage at a quarterly tempo with a vacation spot beneath 3% subsequent yr.  The new RBA forecasts at the moment are more in keeping with that view.

“With inflation firmly within the RBA’s goal band and anticipated to remain there, alongside a labour market that seems roughly balanced, we proceed to anticipate the RBA will decrease the money price towards impartial.

“Rising global trade barriers in addition to geopolitical tensions pose downside risks to regional growth, increasing risks of a steeper rate-cutting cycle by the RBA.”