Analysis of RBA’s Potential Response to Fed Rate Cuts

Citi economists recently analyzed the Reserve Bank of Australia’s (RBA) potential actions in light of expected rate cuts by the U.S. Federal Reserve.

Key Points

• Market Speculation: The commentary follows ongoing speculation regarding global central bank initiatives and recent statements from RBA officials indicating a reluctance to lower interest rates this year.

• Impact of Federal Reserve Actions: Citi suggests that if the Fed enacts a substantial rate cut of 50 basis points at the upcoming September Federal Open Market Committee (FOMC) meeting, the RBA’s communication strategy may have to adapt.

• RBA’s Stance: Despite the Fed’s possible actions, Citi believes the RBA is unlikely to cut rates in 2023.

• Potential RBA Guidance: The firm warns that if a rate cut occurs in the U.S., the RBA might provide more hawkish guidance in response to market predictions.

• Inflation and Unemployment Considerations: Citi highlights that, without unexpected inflation drops or a rise in unemployment, a rate cut from the RBA remains improbable this year.

• Upcoming Data: The only significant data point before the next RBA meeting is the August Labour Force Survey.

Citi maintains a cautious outlook, predicting no rate cuts from the RBA, regardless of the Fed’s decision.