Steve Campbell: RBA ‘well-positioned’ to ease rates more aggressively

Here’s what the latest monetary policy adjustments mean for investors, according to Pendal’s head of cash strategies STEVE CAMPBELL

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THE Reserve Bank of Australia eased monetary policy for a second time this year, cutting the cash rate again by 25 basis points to 3.85%.

Monetary policy settings do remain in restrictive territory.

The market had flirted with the prospect of a 50-point cut after the turmoil that ensued from Donald Trump’s Liberation Day tariffs announced in early April.

This was pared back following a 90-day pause in tariffs and a plethora of other headlines which saw a diminished case for a bigger cut.

The RBA remains attuned to the risks to global economic growth and inflation.

Its statement noted that “the Board considered a severe downside scenario” and that “monetary policy is well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia”.

Accompanying today’s decision was the RBA’s latest set of forecasts through its Statement on Monetary Policy, as shown in the table below.

The RBA has revised its trimmed-mean inflation forecast lower by 0.1% across the forecast horizon.

(The trimmed-mean measure removes the most extreme price movements, providing a more reliable indicator of the underlying trend in inflation.)

The most recent annual trimmed-mean rate of 2.9% fell within the target band for the first time since 2021. The inflation outlook is more supportive for further policy easing if required.

Real household income in the nearer term has been revised higher, by 0.2% to 3.3% for the year ending June and by 0.1% to 2.6% for 2025.

The labour market, based on what the RBA is looking at, remains tight and employment continues to grow.

Today’s statement conveyed a sense that domestically the RBA remains comfortable with the inflation outlook and where policy settings are at. The upside risks to inflation have been diminishing further.

As with all central banks currently, uncertainty over US trade policy and the ramifications from that reign supreme.

However, the RBA is well positioned to ease more aggressively should the economy require stimulus.

There are signs the rate cut earlier this year is helping households, though the majority of the cut is being saved – not spent.

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A fall in petrol prices to their lowest level post-Covid is also assisting. Wages growth is finally exceeding the cost of living.

We maintain the view that two more cuts are forthcoming, likely around the quarterly cycle in August and November.

For investors, bonds continue to offer good defensive value in this environment.

And in the meantime, international events will still keep things lively and any uncertainty will see plenty of opportunity for active managers.

About Steve Campbell and Pendal’s Income and Fixed Interest team

Steve Campbell is Pendal’s head of cash strategies. With a background in cash and dealing, Steve brings more than 20 years of financial markets experience to our institutional managed cash portfolio.

Find out more about  Pendal’s cash funds:

Short Term Income Securities Fund
Pendal Stable Cash Plus Fund

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.

Find out more about Pendal’s fixed interest strategies here