On April 1st, the Reserve Bank of Australia (RBA) decided to keep its cash rate firm at 4.10%, maintaining a cautiously optimistic outlook on inflation. However, the bank remains concerned about global economic instability, mainly due to trade policies in the US.
Market watchers had largely anticipated this decision, with a 93% chance that the rates would remain unchanged beforehand. This meeting follows the RBA’s noteworthy rate cut back in February 2025, which was their first in more than four years, bringing rates down from 4.35% to 4.10%.
Key Insights:
- The RBA held the cash rate steady at 4.10%, an expected move.
- Inflation is gradually easing, aligning with forecasts.
- Despite a dip in employment in February, the labor market remains robust.
- The board has subtly dropped its cautionary stance on further rate cuts.
- There are rising concerns about the impact of US tariff policies on global confidence.
- Markets now see a 70% possibility of a rate reduction in May.
The RBA pointed out in its statement that "underlying inflation is moderating" and has decreased significantly from its 2022 peak. Nonetheless, they emphasized the need for greater assurance that this trend will persist before making further cuts. They reiterated that their policy is still "restrictive," indicating a continued intention to exert downward pressure on inflation.
A subtle change also grabbed traders’ attention: the RBA omitted a direct statement about further rate cuts being handled cautiously. Analysts took this as a mildly positive sign for the markets, pushing the chances of a May rate cut to about 70%. If this happens, the cash rate could drop to roughly 3.35% by year-end.
The RBA devoted more attention than usual to international risks, especially concerning U.S. tariffs. The bank remarked, "Recent announcements from the United States on tariffs are having an impact on confidence globally," adding that broader or retaliatory measures might hinder global growth and exacerbate inflation uncertainty.
During the press conference, RBA Governor Michelle Bullock clarified that they haven’t yet achieved their inflation targets, stressing that the recent rate cut doesn’t signal a continuous trend of reductions. She called this cut a "difficult decision," indicating that any further cuts will rely heavily on new economic data.
Market Reaction:
The Australian dollar saw some initial losses after the RBA’s statement carried a slightly dovish tone, erasing gains from the Asian trading session as Hong Kong and China markets started trading. However, the Aussie soon rebounded, reaching new intraday highs about 30 minutes later when Governor Bullock highlighted the dual risks of inflation, tempering expectations for further rate cuts.
The AUD showed notable strength against the euro, Canadian dollar, and US dollar but made more modest gains against the Japanese yen.
