Australia Set for First Rate Cut Since 2020 as Trade Risks Mount

Australia's central bank is poised to cut interest rates for the first time in four years even as the board remains alert to potential inflationary pressures from mounting global trade turmoil and risks of an election splurge at home.

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A majority of economists in a Bloomberg News survey as well as traders expect the Reserve Bank to embark on easing on Feb 18 with a 25 basis-point reduction in the cash rate to 4.1 per cent. That would be the Reserve Bank of Australia's (RBA) first cut since November 2020 and may provide a shot in the arm for Prime Minister Anthony Albanese, who needs to overcome poor polling to secure a second term.

Money markets are pricing about 85 per cent chance of a cut. Yet a pick-up in consumer spending, aided by tax cuts and government subsidies, along with rising uncertainties about the impact of US trade policies may also convince policymakers to stay cautious.

The RBA's level of policy restrictiveness remains broadly on a par with major counterparts because it did not tighten as aggressively in 2022-2023. The board had sought to hold on to labour market gains while bringing inflation back to target.

Below are the arguments for and against a rate cut on Feb 18.

WHY CUT?