Home Economy News What would the RBA do if the Fed delivers a 50bp rate cut?

What would the RBA do if the Fed delivers a 50bp rate cut?

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Citi economists weighed in on the possible actions of the Reserve Bank of Australia (RBA) in response to a hypothetical large rate cut by the U.S. Federal Reserve.

The research firm’s commentary from Citi comes amid speculation on global central bank movements and recent statements from the RBA’s Governor and Deputy Governor, who indicated a resistance to market expectations for interest rate reductions within the current year.

The firm posits that the RBA’s communication strategy might shift if the Fed implements a significant policy rate decrease of 50 basis points at the September Federal Open Market Committee (FOMC) meeting.

According to Citi, such a move by the Fed could lead to market optimism and subsequent predictions for more aggressive easing by the RBA. However, Citi maintains the view that, regardless of the Fed’s actions, the RBA is unlikely to cut rates in 2023.

“…[I]f the US Fed does indeed cut by 50bps in the September FOMC meeting, then the September RBA meeting a week after raises risks of more hawkish Delphic guidance from Governor Bullock against market pricing,” Citi economists wrote in a note.

“Barring a downside inflation surprise in Q3—we have trimmed-mean inflation at 0.8%— and an unexpected rise in the unemployment rate, we do not see the RBA cutting rates this year, even if the Fed is reducing policy rates by increments of 50bps.”

Citi concluded that there is only the August Labour Force Survey ahead of the next RBA meeting.

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