February RBA Preview: A 25-Basis-Point Rate Cut and the Difficulty of Multiple Easing Measures

TradingKey – On Tuesday, February 18, the Reserve Bank of Australia (RBA) will announce its interest rate decision for February. The market widely expects the RBA to cut rates by 25 basis points, lowering the policy rate to 4.1%. TradingKey Analyst Jason Tang agrees with this view.

Tang notes that the reason is that the year-on-year growth rates of both headline CPI and core CPI in the fourth quarter of 2024 were 2.4% and 3.2%, respectively, below expectations and previous values. 

Compared to the RBA's inflation target range of 1%-3%, even the higher core inflation figure has gradually declined and is approaching the upper limit of the target. This provides the central bank with motivation to cut rates.

However, the Australian economy remains resilient, with low unemployment, the Composite PMI staying above the 50 threshold for three consecutive months as well as recent improvements in the Westpac Consumer Confidence Index and the National Australia Bank Business Confidence Index. 

Contrary to the predictions of dovish economists (who expect the RBA to cut rates 4-5 times this year), Tang believes that, due to stronger economic growth and the need to guard against the risk of inflation rebounding, the central bank may only cut rates 2-3 times in 2025, by 25 basis points each time.