The Reserve Bank of Australia (RBA) released the minutes of its May monetary policy meeting on Tuesday, revealing that the board viewed a 25 basis point rate cut as the most appropriate course of action. The RBA emphasized a cautious and predictable approach to policy amid ongoing economic uncertainties.
The board debated several options, including maintaining rates, a 25 bps cut, or a more aggressive 50 bps reduction. Ultimately, the 25 bps cut was favored, reflecting concerns that inflation remains below the mid-point of the target band and the labor market continues to be tight.
While domestic economic conditions alone justified a rate cut, the board noted progress in reducing inflation meant policy need not remain overly restrictive. However, some downside risks remain, including potential softness in household consumption.
The minutes highlighted that a larger rate cut could provide greater protection against adverse global developments, particularly given US trade policies, which the board described as a significant and negative factor for the global outlook. Nevertheless, the RBA was unconvinced that a 50 bps cut was warranted, as US tariffs had yet to materially impact Australia’s economy.
Officials cautioned that aggressive easing followed by a potential reversal would be challenging for businesses and households. The board concluded that monetary policy is not yet at an expansionary stage but acknowledged that such a stance may be required if global trade tensions worsen significantly.
The RBA reaffirmed its readiness to act decisively if international developments necessitate further intervention.
Following the release of the minutes, the Australian Dollar slipped, with AUD/USD trading 0.19% lower at 0.6483.
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