FX.co ★ RBA’s May Cut Signals Caution, Future Policy Data-Dependent

The Reserve Bank of Australia (RBA) recently decided to reduce the cash rate by 25 basis points in May, as indicated in its latest meeting minutes. This decision was driven by advancements in inflation control, a subdued domestic spending forecast, and global uncertainties. The aim was to maintain consistent policy settings in a time of increased volatility. Although domestic data supported a rate reduction, officials observed no definitive evidence that global trade risks were adversely affecting the economy. A more substantial 50 basis point cut was considered but ultimately dismissed due to inflation not yet achieving a sustained return to the target range, coupled with a robust labor market. Key concerns highlighted included sluggish productivity, uncertainties regarding labor market slack, and potential inflationary impacts from global tariffs. The RBA expressed its preparedness to act should any downside risks arise. Underlying inflation is anticipated to stay within the 2–3% target range; however, the headline Consumer Price Index (CPI) may surpass this in early 2026 driven by energy rebates. Future policy decisions will be influenced by forthcoming data, with a focus on maintaining price stability and full employment.