RBAs Next Rate Cut Hinges on September Inflation Outcome

Highlights:

• The RBA’s next interest rate decision hinges on the September quarter inflation report, set for release on October 29.
• Sector Pressure: The materials sector slid nearly 0.8% as eight gold miners dominated the index’s biggest declines.
• Market Context: Weakness followed a dip in spot gold prices, despite bullion holding near record highs ahead of the U.S. Federal Reserve’s rate decision.

Inflation Data to Guide Policy

The Reserve Bank of Australia’s (RBA) upcoming decision on interest rates will depend heavily on the September quarter inflation report, due for release on October 29. Economists suggest that if core inflation eases to 2.5% annually, the central bank is expected to reduce the cash rate to 3.35%. At the time of writing, bond markets were already pricing in a two-in-three chance of a cut at the RBA’s November 4 policy meeting.

Fine Margins Could Determine Outcome

According to market watchers, inflation readings of 2.7% or higher would likely prevent the RBA from easing further, while a result of 2.6% could split the board’s nine members, leaving the outcome finely balanced. Analysts warn that a marginal difference of just 0.1 percentage points may ultimately determine whether the RBA acts or maintains its current stance.

Market Expectations and Risks

Investors remain cautiously optimistic that the RBA will deliver one more rate cut this year, potentially its fourth in 2025. However, risks linger, as stronger-than-expected inflation could stall policy easing and pressure financial markets. At the same time, the Australian economy faces a delicate balancing act—supporting growth without reigniting price pressures. Bond markets continue to signal optimism, reflecting confidence that inflation is gradually moderating. Still, uncertainty remains high, with the RBA’s next move set to shape both domestic borrowing costs and broader market sentiment. At the time of writing, expectations hinge squarely on the September inflation report, making it the most critical data point ahead of the RBA’s November meeting.

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